This article was last updated on April 16, 2022
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Yesterday’s big bearish reversals and late day selloff carried through overnight trading but appears to be tapering off this morning. The Nikkei fell 1.4%, the FTSE and Hang Seng fell 0.5%, while the Dax is down 0.4%. US index futures are flat licking their wounds at a lower level.
A day that started with tremendous optimism turned into a crushing defeat for market bulls. Stocks initially soared Wednesday on better than expected ADP payrolls. Traders took slightly soft non-manufacturing PMI in stride, but Fed minutes were too much to handle.
Even with the Fed on course to raise interest rates 3-4 times this year, the Fed minutes came in as surprisingly hawkish for two reasons.
First, FOMC members expressed concern about high stock prices and indicates a big tumble could impact their forecast for the year. Considering that the Fed has been a big backer of the big bull market this decade through its ultra-low interest rate and QE asset purchase policies.
Second, Fed members indicated interest in starting to shrink the central bank’s big balance sheet later this year. To this point the street has been thinking the Fed would raise rates this year then pause and work on the balance sheet next year. Indications they could do both at once was seen as a hawkish surprise.
These two items spooked traders and sent the fast money running for the exits. Much of the monetary stimulus of recent years has followed the path of least resistance into the stock market, inflating prices. Indications that the liquidity party may be ending and the prospect of rocket fuel being taken away could start to drag on indices going forward.
The hawkish Fed news also boosted the USD late Wednesday and into today the greenback is consolidating its gains for the most part. Oil is bouncing back a bit on reports that Iran has sold the last of the inventory it had stored at sea and is struggling to grow production. This supports rumblings through the week that the slack in the oil market may be shrinking. This prospect has helped CAD to stabilize today as well.
It’s a light day for economic news so we may see traders continue to react to the Fed minutes and prepare for upcoming developments. ECB minutes have come and gone with no surprises. President Draghi indicated plans to stay the course for now, likely through the end of the year to get past the big elections coming up in France, Germany and maybe Italy.
Tomorrow brings US nonfarm payrolls and Canada jobs which may settle whether economic or monetary factors are the bigger driver of trading these days. The US Trump – China Xi summit is coming up keeping trade and geopolitics in focus. On the US domestic front the wheels continue to turn on health care reform, tax reform and infrastructure spending.
Chart Signals: Oil advances as markets digest bearish NASDAQ reversal
Major indices still appear to be under distribution with yesterday’s rally looking like the bulls last gasp, particularly with the US NDAQ 100 completing a bearish key reversal day. For the most part, indices and currencies have been digesting Wednesday’s action with no major rejection of the late day swings. Crude oil, meanwhile, continues to rally with WTI regaining $51.00.
North American and European Indices
US 30 is hanging around 20,650, just above its 50-day average near 20,600. Yesterday’s pop up toward 20,900 increasingly looks like an outlier with the RSI still under 50 indicating continuing distribution. Resistance drops from 20,745 toward 20,655 with next potential support near 20,390 on a breakdown.
US SPX 500 has stabilized near 2,350 just above its 50-day average near 20,345. Wednesday’s failure to break out of a downtrend and the RSI still below 50 confirms ongoing downward pressure. Next potential downside support near 2,322.
US NDAQ 100 has stabilized near 5,400 after a bearish key reversal day that saw it break out over 5,450 rally to 5,475 then get slammed for a big loss, indicating exhausted bulls and resurgent bears. An RSI downtrend indicates upward momentum weakening. Next potential support at the 50-day average near 5,330.
UK 100 held the neckline of a head and shoulders top near 7,260 on an initial test and has bounced back above 7,300 toward 7,310. RSI remains under 50 so momentum is still turning downward and it would need to break 7,350 at least to call off the bearish pattern.
Germany 30 remains in an uptrend for now bouncing up off a higher low near 12,120 and rallying toward 12,220. It also continues to struggle making headway with an emerging trend of lower highs and a falling RSI indicating a trading correction underway.
Commodities
Gold continues to consolidate in the $1,240 to $1,260 range just below its 200-day average and above its 50-day average near $1,234. RSI steady near 60 indicates a pause within an uptrend.
Crude Oil WTI continues to attract support above $50.00 confirming support has moved up toward $50.45. The price has started to advance again, clearing $51.00 and testing its 50-day average near $51.20 with next resistance possible near $51.55 then $52.25. Rising RSI confirms upward momentum increasing.
FX
US Dollar Index is back holding steady near 100.40 after a Wednesday rally faltered just short of 101.00. The index continues to hold above 100.00 round number support. RSI steady just above 50 indicates a sideways consolidation phase continues.
USDJPY remains in a downtrend below 111.60 currently digesting recent losses and testing round number support as it bounces around between 110.00 and 111.00.
EURUSD is still hanging around $1.0660 with RSI near 50 and a series of doji candles indicating bulls and bears in balance. Initial resistance appears near $1.6080 then $1.0700 with next support near $1.0620 then $1.0585 a Fibonacci level.
EURGBP continues to bounce around 0.8500 and 0.8600 trading near 0.8560 below its 50 and 200 day averages which recently completed a bearish Death Cross. Next potential support near 0.8460 then 0.8400 with next resistance near 0.8660.
GBPUSD continues to consolidate trading above its 50-day average near $1.2420 and the $1.2500 round number recently trading in a $1.2450 to $1.2490 range. RSI holding 50 indicates underlying uptrend still intact.
USDCAD has encountered resistance at a lower high near $1.3450 while RSI also topping at a lower high suggests upward momentum could be weakening. The pair needs to go back under 50 on the RSI and $1.3375 on the pair to signal a downturn.
CADUSD has stabilized near $0.7450 with support moving up toward $0.7430 from $0.7410. RSI stabilizing near 40 suggests the recent downswing may be ending but 50 on the RSI and $0.7500 need to be retaken to signal an upturn.
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