Pre-Market: Warning Sign or Just a Blip in the V-Shaped Recovery?

Stocks extended their late-session losses in overnight trading, with Asian markets suffering a hit and Europe also remaining weak despite the downward drift of the Euro against the Dollar. The Chinese Shanghai Composite failed at the key resistance level that coincided with the prior uptrend line, and from a technical perspective, re-test of the lows seems likely, with the Nikkei, the DAX, and the EuroStoxx 50 being in similar short-term setups.

Shanghai Composite 4-Hour Chart Analysis

Basically, the only the only asset class driving the unlikely V-shaped rally is mega-cap US stocks, and even there, momentum is concentrated in only two sectors, tech and financials.

That said, divergences like this can persist for a prolonged period, but long-term investors should be aware that under the hood, the market is very similar to the major tops of the past 20-years.

Nasdaq 100 Futures, 4-Hour Chart Analysis

The last similar signs emerged in late-2014, preceding a two-year consolidation period within the bull market, and we would still use the current levels to reduce one’s exposure to equities.

Prelim GDP Coming Out

Today, and the whole week is very busy regarding economic releases, as firs the Chinese services and manufacturing PMI’s were released, showing deterioration in both segments, while in Europe, the flash CPI report was in line with expectations.

The most awaited release will come out soon, as we will get a peek at US growth, with the consensus estimate being a 2.5% annualized expansion of the GDP.

Investors will likely jump on the yield-rise train in the case of a significant beat, especially after yesterday’s speech by the new Fed Chair, Jerome Powell, and that could push the Dollar even higher and cause more volatility in stocks.

Pound Lower in Quiet Forex Trading

GBP/USD, 4-Hour Chart Analysis

Before the US release, most fiat currencies are in holding patterns after yesterday’s Dollar rally with only the Great British Pound showing significant weakness. We expect the calm to end soon and we could be in for more volatility, as we don’t think that the market is done with pricing in Mr. Powell’s slightly disturbing views regarding the market.

The main commodities are trading in similarly narrow ranges following yesterday’s selloff, but at the end of the day, this will most certainly change, and crude oil, gold, and industrial metals could all be under pressure if the Dollar rally continues.

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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.