US Stocks Trade Near All-Time Highs amid Unseen Divergences

US stocks hit new all-time highs across the board on Monday thanks to the trade deal between the US and Mexico, and today, the major US indices held on to their gains, finishing marginally higher. Markets remained calm throughout the session, as investors digested the important turn in the trade war saga, and summer trading conditions dominated across asset classes. Volatility was muted, trading volumes were low, and most of the major assets traded in narrow ranges.

USD/TRY, 4-Hour Chart Analysis

The US Dollar continues to be the asset to watch, especially after last week’s attack by Donald Trump on the Fed, as the reserve currency’s path continues to determine trading in a wide range of markets. Emerging markets have been quiet for almost a week, ever since the Turkish mini panic, and although the currencies affected are still trading just off their lows, and the underlying problems are far from being fixed, the dip sharp pullback in the Dollar helped to calm nerves globally.

S&P 500, 4-Hour Chart Analysis

The S&P 500 hit a historic high today, breaching the 2900 level for the first time in history, while the Nasdaq Composite rose above 8000 yesterday. Some analysts are calling the current divergences between the US and other markets “the mother of all divergences”, although for the more experienced investors the late-90’s period should come up as an interesting parallel.

Shanghai Composite, 4-Hour Chart Analysis

In 1998, emerging markets suffered an all-out crash, but developed markets continued to rally for another couple of years before entering a huge bear market. The low number of stocks leading the current rally in the US makes us think that the divergences will resolve earlier than that, but short-term technicals are still clearly positive in the US.

Euro Hits One-Month High

EUR/USD, 4-Hour Chart Analysis

The slightly bearish Fed, the overbought conditions in the Dollar, the US-Mexico deal, and Donald Trump’s push for a weaker currency created a perfect storm for the Euro to sharply rally against the Greenback in the last couple of weeks. After hitting a low near 1.13, the most traded FX pair recaptured the 1.17 level for the first time since late July, but as US yields are back on the rise and as the European economy continues to show weakness, the resumption of the bearish trend is likely soon.

Gold Futures, 4-Hour Chart Analysis

Commodities were also helped by the pullback I the Dollar, but copper and gold continue to be stuck in broader downtrends, and crude oil also stayed below the key $70 level for now, and technicals point to a broader topping pattern in the WTI contract.

Gold rallied back above the $1200 level after the panicky low hit two weeks ago, but the precious metal ran into strong resistance near $1220 this week. Although the counter-trend rally is intact, and the long-term picture is severely oversold, for now, a trend change is not confirmed. While we still think of gold as a great long-term investment at the current levels, traders shouldn’t buy the commodity here.

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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.

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