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Daily Analysis: Stocks Surge to New All-Time Highs Despite GDP Miss

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Friday Market Recap

Asset Current Value Daily Change
S&P 500 2874 1.19%
DAX 13340 0.35%
WTI Crude Oil 66.12 1.08%
GOLD 1348.00 -1.06%
Bitcoin 10,870 -4.29%
EUR/USD 1.2427 0.24%

Markets ended a busy week in a very volatile fashion, although focus shifted somewhat from currencies to stocks following the forex-rollercoaster of Thursday. US stocks recovered without real problems from the volatile consolidation of the last couple of days, and jumped to new all-time highs easily in late trading.

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Investors ignored the miss in US growth, as it was the case with all the negative economic surprises this year, even though the overwhelming majority of this year’s releases was bearish. Today, durable goods orders provided some relief for the macro picture, coming in a tad above the consensus estimate.

Despite the relatively calm day in currencies, the Yen and the Australian Dollar both gained significant ground after the optimistic words of Bank of Japan Governor Kuroda, even as the central bank quickly “clarified” that the governor is actually not positive on inflation.

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USD/JPY, 4-Hour Chart Analysis

As the currency war burlesque continues to amuse investors, it will be interesting to see next step from the real big players in the field the ECB and Fed. With a new Fed chair stepping up, next week’s FOMC meeting will be closely watched by investors, even as no policy change is forecast after the recent rate hike by the US central bank.

Gold has been one of the major winners in recent weeks, as the Dollar weakness lifted the precious metal, even as stocks and yields continued to climb higher. Gold and silver both entered corrections during yesterday’s Dollar turmoil, and although they finished today’s session on a positive note, the rally highs are well above the current levels. Oil, on the other hand, defied the rising Dollar and the record high number of US oil rigs and hit another new 18-month high before the weekend.

WTI Crude Oil, 4-Hour Chart Analysis

Cryptocurrencies

The major coins had a hectic day after two relatively quiet sessions, as bulls got frightened by a sizeable sell-off in early trading. Although the coins bounced back off their lows towards the end of the day, the charts still look wounded from a short-term technical standpoint and the weekend could provide “hot” for crypto investors yet again. That said, as an investor, the outlook is much more positive after the already deep correction and most of the majors are nearing oversold territory.

BTC/USD, 4-Hour Chart Analysis

While Litecoin, IOTA, Monero, and Dash look ready to test the crash lows very soon, Ethereum, NEO, and especially Stellar are holding strong in the face of the broad weakness in the segment. Despite the strength, we expect Ethereum and NEO to experience deeper corrections as well, as they are still overbought from a long-term perspective, while Stellar will also likely have volatile swings as the segment-wide sell-off concludes.

Stellar/USD, 4-Hour Chart Analysis

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Analysis

Pre-Market: Oil Plunges Below $70 as Markets Mixed Before Long Weekend

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Financial markets are relatively calm today, despite the hectic week that was highlighted by the Turkish currency crisis, wild swings in bonds, and a step back in US-North Korean relations. Stock markets turned lower globally, with US equities outperforming the rest of the world, essentially drifting sideways all week long, thanks to the slight correction in the Dollar’s rally, and the dip in Treasury yields that was triggered by the dovish Fed meeting minutes.

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S&P 500 Futures, 4-Hour Chart Analysis

Today, the durable goods report came out before the opening bell and although the headline number was a tad worse than expected the more important core figure beat the consensus estimate, helping the slightly dampening economic outlook, even as yields continue to fall, especially with regards to long-dated Treasuries.

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EUR/USD, 4-Hour Chart Analysis

Although emerging market currencies are way less volatile today than recently, despite the rebound in the Dollar, equities shed their early gains and are now slightly in the red. The all-important EUR/USD pair hitting yet another 6-month low near 1.1650, and the test of the key long-term 1.1450-1.15 zone looks more and more likely in the coming weeks, even as the pair is a bit oversold.

Energy Markets in Turmoil as OPEC Signals Production Increase Again

WTI Crude Oil, 4-Hour Chart Analysis

It seems that the crude oil market is in for a strategic switch yet again, as the OPEC, together with Russia made it clear today that the price of the Black Gold finally reached a desirable level. The cartel will be targeting a higher level of output later on this year in order to keep the US shale players under pressure by capping the advance in the key commodity’s market.

The WTI contract reached a 4-year high at $72 per barrel recently and the Brent contract which is more exposed to Middle East woes rose as high as $80 per barrel after trading below the $30 level just two years ago. The last phase of the advance extended above the level where a large portion of the shale plays turn profitable, and as global growth worries also surfaced, the commodity entered a selloff this week.

Gold Futures, 4-Hour Chart Analysis

Safe haven assets continue to be bid despite the relatively calm environment, and gold hit a two-week high today despite the bounce in the Greenback as buyers are back after the wash-out plunge below $1300. With the long-term setup and fundamentals still being favorable for the precious metal, the short-term downtrend line is in danger here.

As US markets will be closed on Monday, which usually favors an active session, volatility might remain high throughout the day.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 256 rated postsTrader 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.




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Recommendations

Trade Recommendation: Intact Financial

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Technical Overview

  • Since double-bottoming in 2008 and 2009 at $26 (violet horizontal trendline in Figure 1), Intact Financial (IFC.TO) has enjoyed a four-fold increase. During the 2013, 2016 and 2018 corrections, the stock found support at a long-term trendline (support – green trendline; retests – green arrows).

Figure 1. IFC.TO Weekly Chart

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  • Zooming in, after topping in November’17, IFC completed a H&S pattern (tops – yellow ellipses, neckline – yellow trendline in Figure 2).
  • In January, March, April, and May, all up-moves halted at a well-defined short-term resistance (red trendline). Yesterday (May 25), the stock managed to break and close above the resistance.
  • Today, the stock closed in positive territory, whereas the Financial sector (TTFS.TO) declined by over 0.5%.
  • The $95 level had served as support on multiple occasions in 2018 (purple horizontal trendline and arrows).

Figure 2. IFC.TO Daily Chart

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Implications

  • The bounce off of the long-term support and the break above the short-term resistance are considered constructive.
  • The stock is expected to find support in the $95 – $96.50 range during pullbacks (i.e. at the red and purple trendlines).
  • The downward target from the H&S pattern was nearly met during the May decline (target – $92.25 – white vertical trendline in Figure 2, May 9 low – $92.65 – last purple arrow).

Outlook

  • Short-term bullish as long as the stock remains above $95
  • Long-term bullish as long as the stock remains above its long-term support (green trendline in Figure 1).

 Trade Recommendation

  • Buy the stock at current levels ($97.50 at EOD on May 24).
  • Target: Half at $101 (the January low which served as resistance in March – second red arrow). Other half at $108 (origin of the late 2017 decline).
  • Stop: Half upon a close below $95. Other half upon a close below the long-term support (currently at approximately $93.50).

Disclosure: No position yet but may initiate at any time. Will likely recommend the stock to my clients as a potential play within the financial sector.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.8 stars on average, based on 12 rated postsPublished author of technical research. In his work on price “gaps”, published in the 2018 International Federation of Technical Analysts’ Annual Journal, he developed a new technical tool for analyzing and trading the “gap” phenomenon – the “K-Divergence” (http://ifta.org/public/files/journal/d_ifta_journal_18). Besides obtaining a Master in Financial Technical Analysis, he has completed a BBA and an MBA from the Schulich School of Business in Toronto and has completed all exams for the CFA, CMT and CFTe designations. Currently, providing research to investment management and financial advisory firms. http://www.linkedin.com/in/konstantindimov




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Analysis

Stocks Suffer Hit as Trump Cancels Summit, Turkey Hikes Rate

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After yesterday’s late-day bounce, stocks got close to their two-week lows yet again today in early trading, as risk assets got sold across the board after Donald Trump canceled the much-awaited summit with North Korea’s Kim Dong Un. Safe haven assets spiked higher on the news, with gold getting back above $1300, and the Japanese Yen also gaining significant ground on its peers.

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NASDAQ 100 Futures, 4-Hour Chart Analysis

US equities are still not in a terrible short-term position, as the key support levels are holding up, and the trading range is intact, but most European indices gave back all of this month’ s gains, and the cracks on the synchronized global growth narrative are clear.

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Emerging markets are still under pressure, even as the Turkish central bank finally did what we have been expecting, raising its benchmark rate by 3% after an emergency meeting yesterday, but for now, it seems that the this might have been too little too late.

USD/TRY (Turkish Lira), 4-Hour Chart Analysis

The Lira recovered more than 8% off its intraday lows, but today the currency has been plunging again, and it is still dangerously close to its all-time low, and a run on the Lira is still not out of the question. Mr. Erdogan told the Turkish citizens not to exchange their Lira to foreign currency, but the President might need more than “verbal capital controls” to stop the collapse.

Dovish Fed Minutes Cause Slight Dollar Pullback

Dollar Index, Daily Chart Analysis

The US Dollar is lower compared to the Euro, the Pound, and the Yen today, even as the Greenback gained ground against the Canadian Dollar. While the Yen’s advance is due to the risk-off sentiment, the Dollar’s broad pullback started after the release of the FOMC meeting minutes yesterday, as the central bank expressed that it would allow inflation to overshoot the 2% target temporarily.

US 2-Year Yield, Daily Chart Analysis

This caused a drop in Treasury yields across the yield curve, as investors removed their rate hike bets. The 2-year yield briefly hit a level not seen since mid-April, while the 10-year yield got back to the key 3% level. The European Central Bank also released its minutes today, and the bank also cited downside economic risk, capping the dip in the Dollar and helping the pullback in yields.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 256 rated postsTrader 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.




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