Nasdaq Leads Dead-Cat-Bounce Before the Weekend

US stocks finished broadly higher yesterday, with the most oversold Nasdaq leading the way higher, and with all of the main sectors finishing in the green. The market-leading tech giants led the charge, but on a negative note, small-caps underperformed again, and in general, charts are still wounded across the board.

Nasdaq 100 Futures, 4-Hour Chart Analysis

We have been expecting the week to end on a positive note following the wash-out selloff on Thursday, as although outright crashes originate in oversold conditions, but with yields pulling back, and with credit markets being relatively calm, the major dislocations that fuel a crash are not (yet) present. That said, valuations are still extreme in the US, and all rallies should be considered opportunities to sell in the current market environment.

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

Treasuries had a relatively calm session, with yields finishing slightly higher thanks to the improving sentiment. The yield curve remained well below the levels that triggered the steep selloff in stocks in the first place, and given the week’s tame inflation report, a less hectic period for bonds might be ahead.

High yield bonds also finished notably higher, although they are close to their February lows, meaning that while credit markets are relatively quiet, the lower quality issues are underperforming equities, which is usually a cautionary sign.

Dollar Bounces Off Weekly Low

EUR/USD, 4-Hour Chart Analysis

The Dollar which has been drifting lower as stocks plunged bounced back together with equities today, gaining ground against most of its major peers. The EUR/USD pair turned lower off the 1.16 level after the correction, and for now, the declining trend is clearly intact, and a test of the August lows seems likely.

The Dollar’s recent weakness helped the currencies of the most vulnerable emerging markets, but the funding crisis is likely here to stay. Equities are sinking lower and lower globally, following in the footsteps of China, and and we expect the Yen and Dollar to outperform, should the trend continue in the coming months.

WTI Crude Oil Futures, 4-Hour Chart Analysis

Commodities had another mixed day, with all eyes still on gold. The precious metal saw strong safe-haven demand amid the plunge in stocks, and on Friday, it pulled back somewhat due to the improving sentiment. While gold remained above the key $1220 resistance, copper and crude oil bounced higher despite the rally in the Dollar.

The WTI Crude contract remained below the previously dominant rising short-term trendline and the strong support/resistance zone near the $72.50 per barrel level, and it looks ready to test the $69.50 support as well.

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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.