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Analysis

Pre-Market Analysis And Chartbook: Oversold Bounce Leaves Markets Wounded

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Friday Market Snapshot

S&P 500 2,771 0.86%
DAX 30 11,628 0.77%
WTI Crude Oil 71.47 0.68%
GOLD 1,224 -0.25%
Bitcoin 6,208 0.90%
EUR/USD 1.1578 -0.14%

 

After the worst week for stocks since the February volatility-induced crash, bulls have been able to take a breather so far today, since the major stock indices are all in the green globally. While equities are seeing heavy trading, currencies, commodities, and even bonds are relatively stable after the hectic days across asset classes.

Today’s move has all the properties of an oversold bounce, with the sectors that suffered the deepest losses recovering the most, and with the recently stronger assets being weaker amid the bearish rotation.

Nikkei 225 Futures, 4-Hour Chart Analysis

The Nikkei provides the perfect example for the bearish rotation, with the most important Japanese index barely trading above its recent low, despite being one of the strongest benchmarks globally in recent weeks. Of course, the Yen’s safe haven status also has a key role in the Nikkei’s current weakness, as the currency’s strength hurts equities, but the Dow and the S&P 500 are also showing similar short-term weakness due to the rotation.

FTSE 100 Index CFD, 4-Hour Chart Analysis

In Europe, the FTSE 100 is showing similar signs, as although the British market was relatively strong during the recent rally, it quickly plunged to a new low amid the Italian worries and the surging US Treasury yields.

The great British Pound was also pushing higher against its most important peers lately, but not because of the same reasons as the Yen. Traders have been buying the Pound ahead of the deadline of the Brexit negotiations after the currency got deeply oversold during the summer months.

The other European markets are also just slightly higher today, and the weakness has to be worrying for bulls, since this week’s breakdown could be the end of a lengthy topping process which in turn would point to a full-blown equity bear market on the Old Continent.

Emerging Markets Weak amid Volatility Explosion

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

The regime change in US stock volatility is the most important change of the week, since it could be the start of another extended corrective period or even a long-term top on Wall Street. The Volatility Index (VIX) spiked to almost 30 yesterday, and it remains above 20 in pre-market trading, signaling a deeper risk off shift than any time since the February crash.

The Friday effect, which usually exaggerates the intraday trends in volatile markets before the weekend break, could lead to both a short squeeze and another short-term panic, likely giving plenty of day trading opportunities in stocks today. For today, thanks to the pullback in yields, we are leaning on the bulls side, but in the current market, any rally should be viewed as a shorting opportunity from a broader perspective.

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

Emerging market stocks are also trading well below their August lows, and equities in the segment are clearly underperforming currencies as we expected prior to the selloff. That’s true even as Chinese stocks bounced higher on the much higher than expected Trade Surplus (213 billion vs. 85 billion expected) today, with the release cooling fears regarding a major slowdown in the country due to Trump’s trade war.

All-in-all equity markets don’t look pretty, even as they are clearly oversold from a short-term perspective, and emerging markets, together with European markets seem to be ready to lead the way lower again.

ChartBook

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

Nasdaq 100 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

EuroStoxx50 Index CFD, 4-Hour Chart Analysis

Shanghai Composite Index CFD, 4-Hour Chart Analysis

Forex

EUR/USD, 4-Hour Chart Analysis

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

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 374 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 Fall After a Quiet Weekend

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The cryptocurrency segment stabilized this weekend after a technically important breakdown that shifted the short-term outlook to clearly bearish. While the stability was a small plus for bulls, the lack of bullish momentum and the fact that the majors remained below key resistance levels meant that most of the coins remained on sell signals in our trend model. As for the long-term signals, Monero, Ripple, and Bitcoin are the only majors on neutral signals in the still overwhelmingly bearish market.

XMR/USDT, 4-Hour Chart Analysis

Bitcoin continued to fare better than the largest altcoins, but although the most valuable coin made the most technical progress, briefly reclaiming the $6275 level, it also remained in a bearish short-term setup. The total value of the market is stuck near the $200 billion mark, and with Ethereum still being in a steep long-term downtrend and with Ripple giving back a large chunk of its recent gains, sellers are still clearly in control of the market.

BTC/USD, 4-Hour Chart Analysis

Bitcoin’s relative stability continues to be the most encouraging sign in the segment, but the coin is clearly below the previously dominant broad triangle pattern following last week’s breakdown. The technical deterioration means that a test of the key long-term zone near $5850 is increasingly likely, especially as the weak bounce ran out of steam near the $6275 level.

While a weaker support zone is found near $6000, the short-term sell signal is in place in our trend model, and traders shouldn’t enter new positions here. Further resistance is ahead at $6500, $6750, and $7000, while the next major support zone is found between $5100 and $5100.

Ripple Tests $0.42, Ethereum Capped by the $200 Level

XRP/USDT, 4-Hour Chart Analysis

Ripple got back up to the key $0.42 level after plunging below $0.38, but the resistance level halted the bounce and, and the coin is still close to falling back to the previously dominant broad declining trend. XRP is trading right at the declining trendline of the triangle consolidation pattern that developed after the September rally, and bulls would need a sustained break-out above the pattern for a renewed buy signal.

Support levels are found at $0.375 and $0.35, while resistance is ahead in the $0.42-$0.46 and near $0.51 and $0.54, and traders shouldn’t enter new positions here.

ETH/USD, 4-Hour Chart Analysis

Ethereum is still among the weakest majors, and it couldn’t get back above the $200 level during the weekend. ETH remains on sell signals on both time-frames, since the declining trendlines are clearly intact, despite the recent lengthy consolidation period.

Primary support is found at $180, with further zones near $170 and $160, while resistance above $200 is ahead at $235 and $260, and traders and investors should still stay away from the coin.

LTC/USD, 4-Hour Chart Analysis

Litecoin also only managed a weal bounce after the key breakdown below the $56 support, and although it initially respected the $51 level, another test is very likely, and odds favor a break below support given the strong bearish pressures.

A break below the primary support level would warn of the test of the $47 low from August, with the next level of interest being the $44 support, while further resistance above $56 is found at $59 and $64. The coin is on sell signals on both time-frames and traders and investors shouldn’t enter new positions here.

Featured image from Shutterstock

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 374 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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Altcoins

A Few Lessons From Last Week

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There is an adage on Wall Street.  It is quite old. It was passed down to me from my grandfather last Wednesday.  It goes something like this. When the cops raid the brothel, they take everybody including the piano player.  

No matter when the notion originated, it applies directly, and painfully, to last week’s experience with stocks, bonds and crypto assets. Between early Wednesday and Thursdays New York closing, most major US indices dropped a fast five percent.  Friday showed a tepid rebound with the tech heavy NASDAQ posting a 2.3% one day recovery followed by the S&P 500 with a meager 1.2% upward move. Otherwise there wasn’t much good happening.

The story in crypto land wasn’t any better.  In truth it was worse. Taking just the two big guys during the same Wednesday/Thursday time period, things were dismal.  Bitcoin lost 6% in price before staging a weak 1.1% recovery on Friday. Ether dropped 15.6% on Wednesday, then managed a 3.2% Friday bounce.

Nobody escaped untouched unless you were a short seller in which case, congrats! Having lots of company is hardly any consolation for having to deal with investment losses, even if there are only accounting losses.  Nevertheless, everyone who had the ability to read understood the stock market was on a record breaking binge and thus vulnerable.

The only binge connected to crypto prices was a 10 month long hangover from the record levels of late last year.  So should the Wall Street adage be applied here making crypto take on the role of piano player? Or to present the question in a different way, is the piano player merely an innocent victim of being in the wrong place at the wrong time?

The Stock Market Correction Is Not Over

Stock market corrections are never pleasant but many veteran strategist consider them to be a necessary and even healthy part of the investment process.  Last week’s 5% drop was not even pronounced enough to qualify as a bona fide correction. That requires something even more than the 8%+ drop that took place back in February.  

In the very short term, there is little in economic news that is likely to upset the market this coming week but that doesn’t change the fact that interest rates are putting pressure in bond prices and $80 oil prices aren’t helping the inflation picture either.  Finally, there is the uncertainty created by the midterm elections. Making short run market predictions is a fools game, but this one is an exception.

What Does This Say About Crypto Values?

After events of the last week where already depressed crypto values get beaten down even further than stocks and bonds, that is not a good sign.  One of the reasons for this had to be last weeks report from Diar Ltd. showing how Coinbase’s active customers have dropped 80% from record levels of $24 billion in the fourth quarter of last year to $3 billion in the third quarter of 2018.  News of this study was reported by Bloomberg on Wednesday. So this could well have been the fundamental culprit. If so, the timing could not have been better for the short sellers.

No Longer Trending?

The folks at Diar Ltd. are spot on in their analysis but does this mean the end for crypto? Don’t count on it.  In fact there is a positive side to their findings. The most important point is the crypto prices (except for Wednesday) have become increasingly stable.  This stability will serve long term investors well as it will calm the nerves of regulators and merchants inclined to use crypto as a medium of exchange.

The drop off in activity at Coinbase is not surprising.  Speculators have lost interest. Recently we wrote an article about the competition for investor attention between crypto and cannabis.  There is loads of anecdotal evidence suggesting that this is contributing to crypto interest declining.

Here is just two points to remember.  This week on October 17, cannabis becomes legal for the first time throughout Canada. Investors are acutely aware of this bonanza.  During one of the worst weeks in the stock market, US listed cannabis stocks like Medmen Enterprises (MMNFF: $5.84) gained 35% while APHRIA (APHQF: $14.65) added over 13%.  Both stocks experienced greatly accelerated volume. This is an example of just two of many cannabis opportunities that are challenging crypto for investment capital. So the piano player may not be so innocent: he could just be smoking a little ganja.

Featured image courtesy of Shutterstock. 

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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4.4 stars on average, based on 113 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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Analysis

5 Things To Watch Next Week + Chartbook

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2800 Level in Focus in the S&P 500

S&P 500 Futures, 4-Hour Chart Analysis

The trendline breaks that we pointed out last week, which were triggered by the jump in Treasury yields led to an unexpectedly volatile selloff in US markets, while dragging lower stocks globally too. Now, as the technicals shifted bearish in almost all major markets, at least from a short-term standpoint, a more defensive approach is advised even for short-term traders, while we were already defensive with regards to the long-term outlook for US stocks, given the valuation extremes.

Next week, Friday’s oversold bounce could continue in the US, but stiff resistance is ahead not far from the current price levels, in the 2800-2810 area in the S&P 500 the most-watched index. An advance to 2850 would provide a great short-term selling opportunity, but as small-caps, which led the market lower recently remain weak, a reversal off the 2800 level is also in the cards. In any case, a new swing low is likely in the coming weeks, with a test of the 2675-2700 area.

Another Week of Heavy Trading Expected in Treasuries

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

The week will start with a crucial economic release in the US, and the Retail Sales report will likely cause further volatile trading in Treasuries and stocks alike. After pulling towards the end of the week, Treasury yields could head higher again, especially if a strong report revives inflation and rate hike fears.

The meeting minutes of the recent Fed meeting will also be released on Wednesday, and although we don’t expect huge surprises, the Treasury market will likely have another volatile session. The Dollar, which has been drifting lower against its major peers last week, will also be in the center of attention, since despite the correction, the broader trend is bullish, and the reserve currency could be ready for another leg higher.

Keep an Eye on the VIX!

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

We have been following the break-out in the Volatility Index (VIX) in the past couple of weeks and despite the bounce in stocks, the measure remains above the line-in-the-sand 20 level. While the February collapse of the short-VIX trade is unlikely to happen again, there is a good chance that in the coming weeks we will see outsized moves in stocks.

A persistently high VIX would be consistent with the deterioration in market internals that we observed lately, and we don’t expect a quick decline towards the 10 level, as it was the case after every correction in 2017 before the February crash.

Emerging Markets and Europe Trading at Multi-Year Lows

DAX 30 Index CFD, 4-Hour Chart Analysis

There were clear positive catalysts in the second half of the week for emerging markets, with the much wider than expected Chinese Trade Balance and Turkey’s surprising step to release Pastor Brunson helping to ease trade war fears and the pressure on the Turkish Lira respectively. That said, the fresh standoff between Donald Trump and Saudi Arabia could trigger another wave of selling in the assets of the most vulnerable countries, erasing the Friday bounce.

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

As we expected emerging market equities underperformed currencies during this selloff, and as measured by the EEM ETF, the segment hit new lows together with the main European benchmarks. This widespread weakness is an alarming sign for bulls, and although a larger bounce could follow from these oversold levels, there is nothing bullish in the recent price action of the lagging assets.

Earnings Season Heating Up

After the record-breaking second quarter the 3Q earnings are starting to come in, and although analysts have been steadily reducing their estimates across the board, we don’t expect huge negative surprises in the US, as economic momentum remained strong despite slowing global growth. With that in mind, earnings could help in stabilizing the market after last week’s rout, even if a broader trend change is likely underway.

Among the most-awaited reports, we find Johnson & Johnson (JNJ), Bank of America (BAC), Goldman Sachs (GS), Morgan Stanley (MS), Netflix (NFLX), IBM (IBM), and Procter & Gamble (PG), with Tuesday being the busiest reporting day.

ChartBook

Major Stock Indices

Nasdaq 100 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 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

Shanghai Composite Index CFD, 4-Hour Chart Analysis

Forex

EUR/USD, 4-Hour Chart Analysis

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

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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2 votes, average: 5.00 out of 52 votes, average: 5.00 out of 52 votes, average: 5.00 out of 52 votes, average: 5.00 out of 52 votes, average: 5.00 out of 5 (2 votes, average: 5.00 out of 5)
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4.6 stars on average, based on 374 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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