Market Overview
After the incredible sell-off has come the recovery. Although by any stretch of the imagination, it is difficult to feel all that positive at the moment, technical, Wall Street is back into a bull market. Rallying over 20% off its lows, the volatility on equities continues huge but for now, the momentum is with a recovery. What was encouraging yesterday was that in the shock of the weekly jobless claims coming in with an eye-watering 3.3m claims, traders did not seem to be overly phased by this. When bad news is taken well, this suggests that there could be some sustainability to a recovery. Treasury yields continue to consolidate and this is also helping to reduce the propensity for panic selling. With swaps rates on major forex falling back, the dollar has turned corrective and this is also playing into the sense of risk recovery. Today is likely to see the House of Representatives pass the huge $2 trillion fiscal support package and although there is a sense of moderation to the recovery on markets this morning, major forex and commodities appear to be relatively stable. This should be seen as a positive for the prospect of steady recovery as markets settle down.
Wall Street closed another huge session of gains with the biggest three day winning streak since the 1930s. The S&P 500 closed 6.2% higher at 2630. However, US futures are giving back some of these gains this morning, down by -1.3% (although US futures were also lower yesterday morning). Asian markets were strong overnight , with the Nikkei +3.9% and the Shanghai Composite +0.3%. In Europe the markets are following US futures right now, with FTSE futures -1.7% and DAX futures -1.6%. Forex majors show mixed moves this morning, with only really JPY which is performing well. Other markets are very much mixed, even quiet. In commodities, gold is slipping back by -$10 after yesterday’s gains, whilst silver is flat and oil is also mixed.
There are a couple of US data points to be aware of on the economic calendar today. The Fed’s preferred inflation measure, the Core Personal Consumption Expenditure (Core PCE) is at 1230GMT and is expected to show +0.2% in the month of February which would pull the year on year reading up to +1.7% (from +1.6% in January). Then the final University of Michigan Sentiment for March is expected to show a significant downward revision to down to 90.0 from the prelim of 95.9. This would therefore be a sizeable decline from February’s 101.0 and also be around the August 2019 multi-year low (which was 89.8).
Chart of the Day – AUD/USD
With risk appetite on the rebound, the US dollar has turned corrective. At the forefront of the recovery amongst the forex is the Aussie. This is driving a considerable rebound on AUD/USD. The move has formed positive closes in each of the past five sessions and an array of positive candlesticks. Momentum indicators are now in recovery mode, with the Stochastics rising strongly, RSI posting a buy signal (above 30) from its deepest ever oversold position (of 10) and MACD lines are on the brink of a bull cross. The Fibonacci retracements of the big January to March sell-off (from $0.7031/$0.5506) are interesting gauges. Support formed at yesterday’s low almost to the pip of the 23.6% Fib at $0.5866. Furthermore, the 38.2% Fib around $0.6090 was a basis of resistance. This level is being tested again today, but given the momentum of the rally, a confirmed closing breakout would open the 50% Fib as the next target (around $0.6270). Seeing as there is little real resistance of note, the prospect of continued recovery is strong. We look to use weakness as a chance to buy. The hourly chart shows strong progression in the recovery with a run of higher lows and higher highs. Initial support is between $0.6035/$0.6075, whilst holding above $0.5985 maintains momentum of the rally. The first key higher low is at $0.5870. The next real resistance not until $0.6300.
The progress of the euro rally has been remarkable in recent sessions. We have previously discussed the acceleration of the positive candles, and these continue to build. Yesterday’s huge bull candle added around +150 pips and the move has now retraced around 50% Fibonacci of the massive $1.1492/$1.0635 sell-off. Momentum indicators are obviously turning positive with this move and continue to recovery, with upside potential. We note that since February, EUR/USD has seen huge trending moves over two to three week periods, moving between oversold, overbought and back again. Given we are only a handful of sessions into this move, the upside bias remains strong. The hourly chart shows an acceleration away from the uptrend of the recovery and this may slightly weigh on the move today. There is also a mild negative divergence on hourly RSI (and MACD/Stochastics lines crossing lower). This could induce an intraday slip back at least. However, we would see this as a chance to buy. Initial support at $1.1020 this morning, before a good support band $1.0950/$1.0980. Today’s high at $1.1085 is initial resistance but closing well clear of the 50% Fib at $1.1065 is the next bullish step forward.
The acceleration and dramatic nature of the previous sell-off left little real resistance for the recovery. Subsequently, with the bulls running hard, there is little to stand in their way for the recovery. The move has now added as much as +900 pips since the low of $1.1405 last week. Momentum is clearly strongly improving with this move and the bulls remain strong this morning. In fact having made the way quickly through the resistance at $1.2195 (the old October low), there is actually little real resistance until $1.2765 now. We look to buy into intraday weakness on Cable and given that volatility remains huge, there is still likely to be opportunities to play the move. The hourly chart shows initial support in the $1.2130/$1.2230 band above the breakout support area $1.1930/$1.2000. Hourly indicators show minor negative divergences this morning which could mean a near term pullback is threatening to temper the exuberance of this recovery, but we would look to buy into the weakness. Initial resistance at today’s high of $1.2305, with $1.2430/$1.2500 the next realistic resistance.
The slide back on the dollar really began to impact on USD/JPY yesterday as even the yen strengthened yesterday on a day that ended up with positive risk appetite. The correction back has really begun to gather pace now, and is continuing this morning. Having broken the strong uptrend channel, the rally has now topped out. Momentum indicators are increasingly rolling over now, with the bear cross on Stochastics coming and RSI falling back below 50 too. The hourly chart shows the corrective momentum building, with the breakdown below 109.30. This effectively confirms a top completion (implying c. -220 pips towards 107.30) and the market is now beginning to form lower highs and lower lows. Hourly RSI and MACD are decisively correctively configured and intraday rallies are becoming a chance to sell now. A move below 108.55 (an old pivot) would be another step in the correction. A mini downtrend comes in around 109.50 and any intraday rally faltering between 109.30/109.50 is a selling opportunity now. Next support is around 107.85.
Gold
The last few sessions have seen the bull move higher on gold hitting a period of consolidation. As the dollar has weakened this has resulted in a variety of markets pulling strong rallies, but gold has just begun to lag other moves. The candles have become far less decisive, lacking conviction with small real bodies and longer shadows. We have been considering the prospect of a corrective move developing on gold, but the bulls seem happy to support the market even as the run higher has just hit the buffers. Although the daily chart shows a dip back lower early today, the move once more seems to be well supported. Consolidation is beginning to weigh on the daily momentum too, with the Stochastics losing their impetus and RSI tailing off in its advance. There is still a positive bias to gold, with yesterday’s bull candle certainly helping this, but it was interesting to see the 76.4% Fibonacci retracement (of the original $1445/$1702 rally) around $1642 being the basis of resistance. The hourly chart shows a mini trading range now $1585/$1642 whilst momentum indicators settle into far more of a consolidation configuration (with a mild positive bias). Closing above $1642 re-opens the $1702 key high, whilst below $1585 is a correction and would likely provide the next medium term buying opportunity. We remain positive on gold medium to longer term, but an uncertain near term outlook has developed.
WTI Oil
It was interesting to see that even as the dollar saw a sharp corrective move and risk appetite recovered yesterday, oil did not take part in the rebound. The bulls are still struggling to get going in a recovery. After a couple of small bodied candlestick gains, yesterday’s move back lower will have been concerning for the bulls. There is still the potential for a recovery as momentum indicators have picked up in the past week, but they lack any sense of conviction and are struggling in negative configuration still. The MACD lines may be close to crossing higher, but in the absence of any bull signals on RSI or Stochastics, it is a move to be cautious of. The hourly chart shows the market beginning to leave mini lower highs and lower lows, with initial support at $22.40 and deteriorating momentum. However, the higher low at $21.80 is the key level that the bulls really need to hold on to in order to prevent a fall back to retest the key low at $19.45. Resistance at $25.25 is growing ever more important now and a move towards completing a big base pattern above $27.90 becomes increasingly harder to see in the near term as a negative bias seems to be taking hold once more.
The Dow is officially in a bull market. After just three days since a multi-year low, the Dow is over +20% higher from its low. Now having posted three days of consecutive gains, the Dow is now over +23% from its low of 18,213. Technically the move looks strong now, with buy signals across momentum indicators. Bull crosses now on Stochastics, MACD and RSI at 5 week highs. There is also upside potential in the move. All indicators still have plenty to unwind. Old downside gaps that had been left unfilled or unclosed by the precipitous sell-off are now being bull closed one by one. Watch the Fibonacci retracements (of 29,568/18,213) as key gauges in this rally, with 38.2% Fib capping yesterday’s rally. The is a support band between 23.6% Fib (at 20,892) and the near term pivot at 20,530 as key gauge for the development of the rally now. Volatility remains high in equities, and again it will be interesting to see how the bulls respond to renewed negative session. Whilst holding on to 20.530 the Dow should remain in recovery mode now. Above 38.2% Fib the 50% Fib at 23,890 is the next target area.
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