Daily Analysis: Short-Covering Rally Fails in Spectacular Fashion

Tuesday Market Recap

Asset Current Value Daily Change
S&P 500 2612 -1.76%
DAX 11,855 0.79%
WTI Crude Oil 64.67 -1.34%
GOLD 1344.00 -0.80%
Bitcoin 8,018 0.69%
EUR/USD 1.2402 -0.32%

Yesterday’s huge snapback rally reached a make-or-break point already today, as the main US indices got back to, or above the declining short-term trendine thanks to the buying frenzy. As we warned today, the advance didn’t change the bearish setup, especially as the weakest assets continued to struggle from a technical standpoint.

S&P 500 Futures, 4-Hour Chart Analysis

The first half of the US session was about divergences and controversial news regarding the US-Chinese relations, with a new element, a restriction of Chinese investments in some US segments, thrown into the mix.

The shaky equity market didn’t need much more of a bearish catalyst to resume the short-term downtrend, and while the Dow held up well for most of the session (with the help of a Buffett-GE buyout rumor), the Nasdaq led the way lower throughout the session, and the whole market rolled over into the close.

VIX, 4-Hour Chart Analysis

Although the key benchmarks stayed above the Friday lows, with the exception of the Nasdaq, the momentum of the move was strong, with no support whatsoever other than some short-term algos kicking in. Volatility exploded higher again, with the Volatility Index (VIX) topping 23 just before the close, as market breadth remained anemic. With all that in mind, new correction lows seem more and more likely in US stocks too, and we keep our defensive stance on equities, despite the recent bounce.

Gold Rebounds as Treasury Yields Slump

10-year US Treasury Yield, 4-Hour Chart Analysis

As another sign of the risk-off environment, which is still much more obvious in any other asset class than US equities, Treasury yields pulled back sharply in the second half of the day across the yield curve, halting the rebound in the Dollar. With long-term yields falling way more than the short end of the curve, the collapse of the yield curve continued,

AUD/USD, 4-Hour Chart Analysis

Gold recovered above the $1350 price level after retreating in early trading, with both the late weakness in the Dollar and the plunge in stocks boosting the precious metal. WTI crude fell below $65, while industrial metals finished at new multi-month lows despite a strong intraday bounce, and commodity currencies suffered yet again as well.


ETH/BTC, 4-Hour Chart Analysis

Crypto investors had another disappointing session as selling pressure remained dominant, pushing the major coins lower in late trading despite another intraday bounce. With no significant signs of strength among altcoins, Bitcoin’s relatively stable performance is the only positive thing to note, at least regarding the short-term picture, with the total value of the coin plunging below the $300 billion level again.

BTC’s dominance continued to edge higher, getting close to 45%, as Ethereum slid to a 4-month low today, while Ripple continued to lag the largest digital currency too, with only a handful of small-cap coins outperforming their more established peers, as the downtrend in the segment is clearly intact.

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.