Pre-Market: Stocks Up Slightly After Plunge but Sellers Clearly in Control

Global stocks continued the bearish trend that initiated last week, while volatility increased significantly yesterday during the US session. The major US indices plunged by more than 2% and dragged global benchmarks lower as well, so suddenly the correction lows are in sight again. The momentum of the move suggests that we will see at least a test of the lows, as the charts continue to show bearish pressures across the board.

NASDAQ 100 Futures, 4-Hour Chart Analysis

Today, stock futures have been slightly above the lows from yesterday, but the short-term charts are clearly wounded and any bounce should be treated as a counter-trend move here. While significant new correction lows are not guaranteed here, bulls should wait until a short-term trend change rather than guess the bottom, as the risks of a deep downswing are high.

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

The rising trend in Treasury yields is among the catalysts of the move, as we painted out several times, and with the whole yield curve still drifting higher to new multi-year highs, the short-term trend could continue. European stocks are holding up well compared to their US peers, and the Japanese Nikkei is also relatively strong, and all of that could be attributed to one thing, the Dollar’s strength.

EUR/USD at Make-Or-Break Level

EUR/USD, 4-Hour Chart Analysis

Forex markets are very active these days, as the massive move in yields boosted the Dollar, which has been gaining ground compared to all of the majors. The most-watched EUR/USD pair is just above the March low, very close to hitting a 3-month minimum, with only 30 pips of cushion remaining for bulls.

Dollar Index, 4-Hour Chart Analysis

The trend in the Dollar index suggests a breakdown in the coming period, as the broader measure broke out from a range that has been intact for several months. Of course, a hawkish ECB statement tomorrow could save Euro bulls here, but given the bearish positioning regarding the Dollar, the “pain trade” would probably be a strong Dollar rally.

Commodity currencies continue to trend sharply lower, despite the stability in the price of oil, and as we noted several times, the Australian Dollar and the Canadian Dollar have been reliably leading risk assets in the last couple of months, so this trend doesn’t bode well for equities.

The same goes to the negative reaction of the most-watched quarterly earnings releases (Google parent Alphabet, Caterpillar), so for now, caution is the name of the game for equity investors.

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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.