Wall Street came back from its worst one day performance for the calendar year overnight, lifting slightly while European stocks played catchup and fell across the board. This is likely a deep breath before the plunge as markets go quiet over the Xmas break. King Dollar remains unopposed with only a mild mid session dip as the BOE held rates, which soar Pound Sterling fall to a new yearly low, while Euro stayed below the 1.04 handle again. Meanwhile the Australian dollar couldn’t escape its trajectory and is sitting just above the 62 cent level.
US Treasury 10 year yields are stabilising at the 4.5% level while oil markets are trying hard to stabilise as Brent crude remains below the $73USD per barrel level. Gold is also under the pump as it fails to get back above the $2600USD per ounce level after its recent $50 plus move lower.
Looking at markets from yesterday’s session in Asia, where mainland Chinese share markets were having a poor session with the Shanghai Composite down 0.4% in afternoon trade, still unable to break above the 3400 point level while the Hang Seng Index finished 0.6% lower at 19752 points.
The Hang Seng Index daily chart shows how short term resistance was finally being pushed away with a huge breakout above the 19000 point level that then set up for a run at the 20000 level in the response to PBOC stimulus last month before a massive retracement. Price action was trying to get back to these overextended highs but has failed in subsequent waves so watch for another potential breakdown here:
Japanese stock markets were also in the red, but its all relative with the Nikkei 225 closing just 0.6% lower at the 38810 point level.
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. Yen volatility remains a problem here, with a sustained return above the 38000 point level from May/June possibly on the cards as positive momentum is building but futures indicate a rocky end to the trading week given the overnight Wall Street moves:
Australian stocks were the worst in the region with the ASX200 falling more than 1.7% to 8168 points.
SPI futures however are down another 0.6% so not a good time for traders to go on holidays just yet! The daily chart pattern and short price action suggests this rollover could build momentum to the downside as it appears support at the 8400 point level was illusory indeed:
European markets predictably played catchup and fell back across the continent with the Eurostoxx 50 Index eventually closing more than 1.5% lower at 4879 points.
This was looking to turn into a larger breakout with support at the 4900 point level quite firm with resistance again unable to breach the 5000 point barrier. Price had previously cleared the 4700 local resistance level as it seeks to return to the previous highs but momentum has rolled over here with futures indicating more moves below the 4900 point level likely:
Wall Street stabilised somewhat across the board with the NASDAQ putting on just 0.2% while the S&P500 advanced nearly 0.3% higher to 5890 points.
With the government shutdown looming the Orange Santa rally is now fully out of steam on the Fed punchbowl draining with dead cats flying all round the place. There is a high chance of more downside volatility here but the bottom pickers could move in swiftly given the clowns are running the circus even before opening day at the zoo:
Currency markets remain in the thrall of King Dollar with last night’s BOE hold only sending Pound Sterling sharply lower while the rest of the complex had a small mid session blip before returning to their downtrends. Euro remains well below formere support at the 1.04 zone, returning to its previous low overnight.
This all still fits in with my contention that we are still likely on our way back to parity as traders start to price in the now very unclear future for the continent. The union currency is now making new lows and will likely slide further towards parity going into the end of the trading year:
The USDJPY pair was able to push higher after its recent pause from its rebound last week, pushing up through the 157 level overnight.
Short term momentum has switched back to overbought settings as price action makes a breakout in the short term, with the potential for more upside here although this is looking very overstretched:
The Australian dollar has been one of the most depressed with Chinese slowing and now a lack of more Fed cuts as the RBA plays fiddlesticks while this all goes on, with the Pacific Peso staying down at the 62 handle overnight with little sign of life.
This breakdown has been on the cards for weeks and will reverberate into the new year as the currency finally reweights according to its position in the global economy – lower tier:
Oil markets are trying to re-engage post the OPEC meeting as Brent crude tries to get out of its depressed mood around the $72-73USD per barrel level, but was again held below the $73 level it breached on Friday night as it still can’t manage to fulfill this bounce.
The daily chart pattern continues to tighten like a spring with short term momentum definitively in negative territory as medium term price action still supports a downtrend with my contention of another sharp retracement forthcoming if the $70-72 zone is not defended:
Gold suffered almost as much as the Australian dollar on the Fed cut/hold and is staying well below the $2600USD per ounce level overnight.
Price action had been accelerating in confidence in early December as new levels of support were being created regardless of USD strength but this pullback and rebound both had been fighting too much under the $2700 zone so I have been skeptical of any upside potential. And here we are with a new low for that is threatening the year long uptrend:
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!