|WTI Crude Oil||48.10||-1.39%|
The question in the title is probably the most popular one this weekend among traders. Stock markets concluded a strange period, with some of the most important indices registering their worst week in 6 months. Seemingly this was due to the political turmoil concerning a controversial new healthcare bill pushed by the new US administration and, above all, Donald Trump. The reality is that it’s probably just the trigger that the overbought market needed to enter a much-needed correction after the furious rally that ensued following the US election. The following chart shows just how extraordinary the last few months were for global stocks.
The leading indices since the US election, Comparison Chart (% gains)
Whether or not this correction will cut a meaningful slice out of the lofty profits of the previous period is yet to be seen, but there are signs that we might have at least a sizeable decline in our hand. Some important trend-lines have been broken on the charts of the major indices, as the momentum of the rally faded away. That said, the dominant long-term trends are still intact, so screaming bear market is definitely premature, even if the recent highs turn out to mark THE top of the now 8-year long bull run.
Economic numbers were mostly positive globally, especially in the UK, and the Pound was among the winners of the week thanks to that. The sad terror attack in London also made headlines, but the markets barely budged in the aftermath, pointing to a rather interesting “terror-fatigue” among traders. The weakness of oil continues to weigh on the energy segment, as the crucial shift towards shale oil re-writes the rules of the most important commodity’s market.
This week we take a look at the stock index that is in the heart of the current global rally, the Nasdaq. The technology benchmark has been spearheading the advance in the last few weeks, with several giants like Apple and Google pulling the index to new all-time highs. That’s right, the Nasdaq finally left behind the levels of the gargantuan bubble of the 90’s, and it’s now ramping into uncharted territory, with the help of free money freshly “printed” by central banks, of course.
NASDAQ 100, Daily Chart
The dominant pattern has been a strong rising channel since the US election, but that has been broken last week. The benchmark “crawled” along the lower boundary of the channel towards the end of the week, as global markets consolidated.
This brake might turn out to be a game changer for stocks, but there are several support zones below that could ignite a rally to new highs again. The MACD is actually getting close to neutral territory, although it’s still on a sell signal. The strength of the bull market shouldn’t be underestimated here, but for the first time this year, meaningful cracks have appeared on the surface of the rally.
The Story of the Week: Liquidity Illusion
Liquidity crashes on the 21st of March after a 1% decline in the S&P 500 (black line), source: Nanex
One of the most interesting aspects of today’s rigged market is that on the major stock exchanges there SEEMS to be an infinite amount of liquidity, but still, flash crashes occur with disturbing frequency. In mere seconds, theoretically stable assets can decline by double-digit percentages… How is that possible if the trading robots (the “Algos”) are there all the time to provide liquidity? This Tuesday’s “large” decline gives us a clue (see the chart above).
The robots simply left the field on the first sign of trouble, leaving smaller players alone without substantial liquidity. And this was only a small correction that is barely visible on the long-term charts, mind you. One can only speculate what would happen in the event of a more substantial negative mood in this algo-driven environment. The takeaway is that risk is always there — just because the market is stable and seemingly liquid, risk management is never to be forgotten by the individual investor.
Key Economic Releases of the Week
|Monday||CANADA||Wholesale Sales (monthly)||3.30%||0.30%||0.30%|
|Tuesday||CANADA||Core Retail Sales (monthly)||1.70%||1.30%||-0.50%|
|Tuesday||GLOBAL||GDT Price Index (bi-weekly)||1.70%||-6.30%|
|Wednesday||US||Existing Home Sales||5.5 million||5.59 million||5.69 million|
|Wednesday||US||Crude Oil Inventories||5.0 million||1.9 million||-0.2 million|
|Thursday||UK||Retail Sales (monthly)||1.40%||0.40%||-0.50%|
|Friday||US||Core Durable Orders (monthly)||0.40%||0.50%||0|