Pre-Market Analysis And Chartbook: Europe Leads Rally in Stocks, as Yields and Dollar Rise

Monday Market Snapshot

Asset Current Value Daily Change
S&P 500 2,696 1.29%
DAX 30 11,414 1.91%
WTI Crude Oil 67.16 -0.70%
GOLD 1,233 -0.17%
Bitcoin 6,263 -2.22%
EUR/USD 1.1379 -0.21%

Risk assets are a having a generally positive day so far, as the recent selloff ran out of steam, and the oversold momentum readings triggered a rally in the weakest assets. China has been the negative outlier, as after a few days of relative strength sellers are back in control of the weakest global market. European equities are spearheading the advance, with especially the battered DAX bouncing back hard, while the key US benchmarks opened with modest gains.

Shanghai Composite Index CFD, 4-Hour Chart Analysis

The Shanghai Composite now gave back most of its recent gains, and the bear market in China is well and alive, with the first major resistance level already capping the oversold rally. After the major breakdown to new multi-year lows in recent weeks, a choppy consolidation period could be ahead in China, as European and US markets work their way through the oversold momentum readings.

We expect the downtrend to resume after the correction and investors should still remain defensive towards the country.

DAX 30 Index CFD, 4-Hour Chart Analysis

We noted the positive divergence and the possible seller-exhaustion in the DAX last week, and today the German index jumped by more than 2% thanks to the improving sentiment. Angela Merkel is reportedly planning to step down from leading her after a bad result for the CDU on the regional election in Hesse.

The move, which would leave Merkel in place as Chancellor didn’t rock the German market, and with it, she would distance herself from her party and could use the last 2 years of her tenure to cement her legacy.

US Stocks Higher Despite Inflation Beat

US stocks are broadly higher after the first hour of trading, with all of the main sectors being in the green and with the Nasdaq and the S&P 500 both being up by more than 1.5%. The slightly lagging Dow also recovered a large chunk of its losses from Friday, and on a positive note, the Russell 2000, the main small-cap benchmark is outperforming for the second day in a row, so the current advance could be more than just another intraday rally attempt.

S&P 500 Futures, 4-Hour Chart Analysis

The S&P 500 is no likely headed to the strong resistance zone in the 2735-2750 zone, and even a move to 2800 would keep the downtrend intact. The Volatility index (VIX) is notably lower today, but it’s still above the key 20 level, and the broader risk-off shift is confirmed by market internals too, so long positions should only be considered as short-term trades.

EUR/USD, 4-Hour Chart Analysis

Currencies are relatively calm so far today, with the Dollar rallying against most of its peers following the higher-than-expected PCE price index, the Fed’s favorite inflation gauge. Treasuries gave back their initial gains due to the release and the bounce in stocks, even as personal income missed the consensus estimate.

The Yen is among the weaker currencies before the Bank of Japan’s meeting, as traders are betting on a dovish surprise following the turmoil in financial markets, and especially China, and as we have more and more evidence pointing to a global economic slowdown.

ChartBook

Major Stock Indices

Nasdaq 100 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 4-Hour Chart Analysis

VIX (US Volatility Index), 4-Hour Chart Analysis

FTSE 100 Index CFD, 4-Hour Chart Analysis

EuroStoxx50 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

EEM (Emerging Markets ETF), 4-Hour Chart Analysis

Forex

USD/JPY, 4-Hour Chart Analysis

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/USD, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Gold Futures, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

Featured image from Shutterstock

Author:
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.