The late start to the trading week as US markets reopened is one most would like to restart again as risk aversion due to possible slower growth across China and the US from their respective PMI prints sent everything down overnight. Commodities led the way as USD shored up against the majors, with Wall Street slumping across the board more than 2% lower. Euro continues to deflate while the Australian dollar slumped to a new low on the commodity rout to hold just above the 67 cent level.
10 year Treasury yields were down nearly 7 points with bond markets positioning for Friday’s US NFP print while oil prices were sharply lower on demand concerns as Brent crude fell back to just above the $73USD per barrel level. Gold had been struggling to make headway and also couldn’t hold to the risk off mood with a sharp move below the $2500USD per ounce zone.
Looking at markets from yesterday’s session in Asia, where mainland Chinese share markets are pulling back again with the Shanghai Composite down 0.3% while the Hang Seng Index lost a similar amount to close at 17651 points.
The Hang Seng Index daily chart was starting to look more optimistic a few months back but price action has slid down from the 19000 point level and continues to deflate in a series of steps as the Chinese economy slows. A few false breakouts have all reversed course and another downside move is again looming here as price action won’t clear short term resistance:
Meanwhile Japanese stock markets were also quite weak with the Nikkei 225 listless at 38686 points.
Price action had been indicating a rounding top on the daily chart with daily momentum retracing away from overbought readings with the breakout last month above the 40000 point level almost in full remission. Short term support subsequently broke on that retracement, and then the front fell off. Yen volatility is coming back so a sustained return above the 38000 point level from May/June is still possible but futures are indicating a poor opening today:
Australian stocks are having another sideways session with the ASX200 closing flat at 8103 points.
SPI futures are down at least 1.2% as a result of the slump on Wall Street overnight. Short term momentum and the daily chart pattern was potentially signalling a top here and this combination could still eventuate, as support at or just below the 8000 point level is likely to come under threat:
European markets quickly switched into negative mode with losses across the continent as the Eurostoxx 50 Index closed 1.2% lower to 4912 points.
The daily chart shows price action off trend after breaching the early December 4600 point highs with daily momentum retracing well into an oversold phase. This was looking to turn into a larger breakout with support at the 4900 point level quite firm with resistance just unable to breach the 5000 point barrier. Price has cleared the 4700 local resistance level as it seeks to return to the previous highs but momentum was slowing before this pullback:
Wall Street returned from its Labor Day long weekend and pressed the sell button all session with the NASDAQ down more than 3% while the S&P500 closed some 2% lower at 5528 points.
The four hourly chart illustrates how this bounceback had cleared the mid 5300 point level with momentum retracing fully from oversold to very positive these past two weeks. The potential for a positive breakout was building for a swift return to the early August highs as price has respected short term support, but that has now evaporated:
Currency markets kept the course as US traders returned from their long weekend holiday with USD still proving strong against most of the majors. Euro has continued to deflate here, settling below the mid 1.10 level for a new monthly low.
The union currency was looking overbought in the short term as I mentioned before, but had also been structurally supportive so this extended dip is now threatening to turn into a wider rout if it can’t get back above former support at the 1.11 handle:
The USDJPY was doing well to get out of its downwards medium term pattern with a follow through after the weekend gap to return well above the 146 handle, but has failed in the last 24 hours to hold on to those gains to get back to where it started at the mid 145 level overnight.
The overall volatility leading up to the recent rout spoke volumes as it pushed aside the 158 level as longer term resistance in the weeks leading up to the BOJ rate hike. Momentum was suggesting a possible bottom was brewing as the BOJ wants to get this under control with this breakout building, but watch out for a possible retracement towards the end of the week at the NFP print looms:
The Australian dollar had been pushing higher on the weaker USD but it finally broke its short term uptrend on Friday night, retreating below the 68 cent level but not short term support, which was then taken out overnight for a quick trip down to the 67 handle.
During June the Pacific Peso hadn’t been able to take advantage of any USD weakness with momentum barely in the positive zone but that has changed in recent weeks with price action finally getting out of the mid 66 cent level that acted as a point of control. This positivity has disappeared with a full retracement of the last two weeks of weak price action, sending it back to the 67 cent level:
Oil markets are now in failure mode as they couldn’t get out of their previously weak position with Brent crude snapping sharply lower to the $73USD per barrel level making a new monthly low in the process.
After breaking out above the $83 level last month, price action had stalled above the $90 level awaiting new breakouts as daily momentum waned and then retraced back to neutral settings. Daily ATR support had been broken with short term momentum still in negative territory, setting up for this sharp retracement – watch out below:
Gold was barely keeping above the $2500USD per ounce level as intrasession volatility reduced before last night’s slump, which indicated to me something was afoot as it fell sharply below that level and then meekly climbing back up to the $2490 position.
The longer term support at the $2300 level remains firm while short term resistance at the $2470 level was the target to get through last week as I indicated. This is still too dependent on USD weakness and I expect further falls:
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!