Friday night saw risk markets lose their nerve in full, with Wall Street down 2-3% while the USD soared against all the majors – save gold – due to increase concerns about a war in Eastern Europe and the rising US inflation print. The USD index rose nearly 0.7% while the bond market saw a slightly inversion after big levels were taken out with the 10 year Treasury yield previously, now pushed back below the 2% level with interest rate futures continuing to price in a possible 50 bps rise by the Fed next month. Commodity markets were very solid, particularly oil with the Brent marker rising to an 8 year high, now above the $94USD per barrel level on energy price concerns.
Bitcoin tried to breakout above the $45K level again last week but was pulled back by a wave of volatility across actual currency markets and continued its consolidation above the $42K level on Friday night. Daily momentum has reverted to barely positive levels with the potential for a rollover building here:
Looking at share markets in Asia from Friday’s session, where mainland Chinese shares fell sharply going into the close with the Shanghai Composite down 0.6% at 3462 points while the Hang Seng Index was down 0.6% at one stage but eventually finished with a scratch session at 24906 points. Price action continues to be poised here after filling in the decline of the previous two weeks, with the daily chart showing it unable to clear the 25000 point level reached in mid January as momentum stays overbought but unchanged. I warned last week that this maybe yet another bearish pattern forming again:
Japanese stock markets are closed for yet another holiday with the Nikkei 225 opening today with a probable slump below the 27000 point level. The daily chart is closing a bull trap here with this next phase of a dead cat bounce that looked like a swing play that failed to turn into something more substantial as considerable resistance overhead at the 28000 point level proved too hard to clear. We could see a return to the January lows swiftly here:
Australian stocks fell with everything else with the ASX200 finishing 1% lower at 7217 points. SPI futures are also not looking good, down at least 0.5% due to the slump on Wall Street on Friday night with overbought price action from last week looking to pull back down to the previous weekly/monthly support levels. Daily momentum has not been positive since this reflation trade started, so we’re likely to see more signs of a rollover as this trading week begins. Added volatility from earnings season will be interesting too – the 7000 point level must hold:
European shares all fell back to varying degrees with peripheral stocks losing the most, as the Eurostoxx 50 index eventually finished 1% lower at 4155 points before dropping another 1% or so in post-close futures as Wall Street slumped and the war drums beat across Eastern Europe. A much weaker Euro is not providing additional support here in the short term as price action shows a series of lower highs as trailing overhead resistance at the 4250 point level firms once more. Watch the 4000 point level which must hold here to stave off a wider correction:
Wall Street fell out of bed the most, with the NASDAQ down nearly 3% while the S&P500 lost 1.8% to close at 4418 points. The daily chart shows price retracing back below the previous “bottom” highs at the 4440 level (mid black horizontal line) after failing to substantially clear previous support, now key resistance at the 4500 point level. Notably, daily momentum never went positive during this phase, a key risk management sign not to extend this trend further higher. We’re likely to see a return to those January lows as a result:
Currency markets had a yet another volatile night but this time it was all in one direction as King Dollar flexed its muscles against all the undollars, save Yen and gold. Euro fell sharply in the wake of the Ukraine crisis, falling well below the 1.14 level after rejecting the 1.15 handle following the US inflation print. There’s daylight below here as the four hourly trailing ATR support level was taken out so watch for another close below the 1.1320 level to confirm:
The USDJPY pair was flummoxed on the safe haven run to Yen after running all last week to new highs, even breaching the 116 handle as it pushed aside weekly resistance levels. Momentum was extremely overbought on the four hourly chart and ripe for a pullback as recent price action looked toppy, but this sharp a reversal was not on the cards. Notably, there was some internal buying support to finish at the mid 115 level and above ATR support but this could quickly run over again as news out of Eastern Europe doesn’t look promising:
The Australian dollar had increased volatility, although it didn’t make new session lows, oscillating around the 71 handle as it hovers near its recent weekly highs. The conversion of a classic swing play into an outright new trend is failing here as the only thing holding the Pacific Peso up is iron ore prices :
Oil markets love a war to keep energy prices elevated and the December trend in Brent crude saw a break above the $94ove the $91USD per barrel level. The next target at $100USD per barrel could still be a step to far, as this recent breakout was overextended in the short term, with this consolidation possibly extending lower to the $90USD per barrel level, so watch daily momentum readings to remain above 100 (i.e overbought):
Gold was the lone undollar that went the other way on Friday night, proving its potential worth as a safe haven with a solid surge up to the $1860USD per ounce level for a new weekly and monthly high. This almost takes it back to the November highs with daily momentum now quite overbought, with the potential for a minor pullback here before another leg up:
Glossary of Acronyms and Technical Analysis Terms:
ATR: Average True Range – measures the degree of price volatility averaged over a time period
ATR Support/Resistance: a ratcheting mechanism that follows price below/above a trend, that if breached shows above average volatility
CCI: Commodity Channel Index: a momentum reading that calculates current price away from the statistical mean or “typical” price to indicate overbought (far above the mean) or oversold (far below the mean)
Low/High Moving Average: rolling mean of prices in this case, the low and high for the day/hour which creates a band around the actual price movement
FOMC: Federal Open Market Committee, monthly meeting of Federal Reserve regarding monetary policy (setting interest rates)
DOE: US Department of Energy
Uncle Point: or stop loss point, a level at which you’ve clearly been wrong on your position, so cry uncle and get out!wrong on your position, so cry uncle and get out!