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Daily Analysis: Stocks Turn Lower as Kiwi Collapses after Coalition Agreement

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Thursday Market Recap

Asset Current Value Daily Change
S&P 500 2558 -0.09%
DAX 12990 -0.41%
WTI Crude Oil 51.37 -1.39%
GOLD 1289.00 0.43%
Bitcoin 4258 -0.89%
EUR/USD 1.1829 0.36%

A sudden decline in the Hang Sei index in Hong-Kong sparked a wave of selling in global stocks, but the major US indices recovered well during the session, which marked the 30th anniversary of Black Monday, the largest one-day decline in history. Today, there was no follow through after the early losses, and with IBM still leading the way, the Dow and mega caps pulled the market higher.

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With the dovish candidates gaining momentum in prediction markets regarding the next Fed Chair, the Dollar slid lower for the second day in a row, losing ground to the Euro, the Yen, and the Loonie, but the struggling Great British Pound turned south again thanks to the lingering Brexit fears.

NASDAQ 100 Futures, 4-Hour Chart Analysis

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The New Zealand Dollar and the local coalition talks made headlines, as the Kiwi lost more than 2% against the major currencies following the announcement of the new Labour-led government. The currency hit a new 5-month low against the Greenback amid the rout and got close to key 0.70 level as well.  Gold continued its rebound thanks to the stock weakness and the Dollar sell-off, but the precious metal is still well-off the $1300 level after the weakness earlier on this weak. Crude oil remains very choppy, as it fell below the $52 barrel yet again, extending the trendless, hard-to-trade period in the crucial commodity.

NZD/USD, 4-Hour Chart Analysis

Cryptocurrencies

The sharp drop of yesterday is just a faint memory for Bitcoin traders, as the most valuable cryptocurrency is back near its all-time high, leading the swift recovery in the segment. Most of the majors are up today, with Ripple and Ethereum still being in the center of attention, following the Byzantium update of the second largest blockchain and the extremely volatile days of XRP. The rest of the majors are less volatile, with notable weakness in the market of NEO and IOTA, and a generally calmer environment following yesterday’s turmoil.

XRP/USDT, 4-Hour Chart Analysis

Technical Picture

Gold might have formed a crucial higher low this week that could propel the next leg higher in the long-term uptrend, providing a good buying opportunity for both investors and traders. The precious metal is after a bullish cross in the MACD indicator with a favorable stop loss level found below yesterday’s low. Gold faces resistance near the key $1300 level, and above that      around $1315.

Gold, 4-Hour Chart Analysis

Key Economic Releases on Thursday

Time, CET Country Release Actual Expected Previous
2:30 AUSTRALIA Employment Change 19,800 15,200 54,200
2:30 AUSTRALIA Unemployment Rate 5.5% 5.6% 5.6%
4:00 CHINA GDP 6.8% 6.8% 6.9%
4:00 CHINA Industrial Production 6.6% 6.4% 6.0%
10:30 UK Retail Sales -0.8% -0.1% 1.0%
14:30 US Unemployment Claims 222,000 245,000 243,000
14:30 US Philly Fed Index 27.9 22.2 23.8

Key Economic Releases on Friday

Time, CET Country Release Expected Previous
14:30 CANADA CPI 0.3% 0.1%
14:30 CANADA Core Retail Sales 0.3% 0.2%
16:00 US Existing Home Sales 5.32 mill 5.35 mill

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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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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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Analysis

Crypto Update: Coins Spike Lower amid Regulatory Woes, Technical Breakdown

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Following a period of directionless range trading in the segment, cryptocurrencies got hit hard yesterday, on a very busy day in financial markets. The largest coins and small caps are down by 20% in two days on average, with the total value of the market declining by around $70 billion. The Indian tax plan, and the continued rise of the Dollar were among the triggers of the losses, and the move accelerated when key initial support levels were broken in the majors. The current selloff could be the last phase of the correction of the April run-up, as sentiment volume patterns and sentiment point to an approaching durable bottom.

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While the market managed to bounce in late trading, which extended to the Asian session today, now the coins are generally trading on new short-term lows after another wave of selling hit them. Correlations are very high, with only a few coins, Ethereum, Ripple, EOS, Tron, and Stellar showing some signs of resilience amid the rout.

BTC/USD, 4-Hour Chart Analysis

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Bitcoin plunged lower together with the broader market despite showing some relative strength in the beginning of the week, and it violated the key support zone between $7650 and $7800 in the process, Now, BTC is trading just above the $7300 support, with the short-term momentum indicators in oversold territory.

The coin is still not a buy from a short-term perspective, and traders shouldn’t enter new positions yet. Further resistance is ahead in the key $8400-$8600 zone and between $9000 and $9200, while support is found at $7000 and $6750.

ETH/USD, 4-Hour Chart Analysis

Ethereum continues to be in a better technical position than BTC and the coin is trading in the strong support zone between $555 and $575 after falling below the $625-$645 zone. We still expect the uptrend to resume, and as the daily momentum indicators are also headed towards oversold territory, a long-term buy signal is close. Further support is found near $500 while above $625 the next main zone is between $735 and $780.

Ripple Holds $0.575, as Altcoins Trying to Find Footing

XRP/USD, 4-Hour Chart Analysis

XRP is showing the most short-term promise among the top coins, holding up above yesterday’s low, while showing a positive divergence with regards to the 4-Hour MACD indicator. The recently rallying Tron is also relatively strong today, although it fell back into its previous trading range, while the other leaders of the April surge, IOTA and EOS are also stuck in declining patterns.

There are still no cons on a short-term buy signal and Bitcoin Cash, Monero, Litecoin, NEO, and Dash are among the laggards, but for now, the long-term picture remains promising for the whole segment.

Stay tuned for our long-term technical analysis coming out later on today.

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Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

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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