Strong start to the year for Oil and stocks but can it last?

This article was last updated on April 16, 2022

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Market Insights

Strong start to the year for Oil and stocks but can it last?

Markets around the world are off to a roaring start‎ with traders returning from holidays in a good mood and optimistic about 2017.

Some markets in Europe were open Monday and posted 1%+ gains and this positive momentum has continued around the world. The Hang Seng gained 0.7% while Australia rallied 1.2%. The FTSE is up 0.4% while the Dax is holding steady. US index futures are up 0.8%.

In addition to the usual New Year’s‎ Rally enthusiasm, markets are being propelled higher by positive manufacturing PMI reports for the UK and China and a positive employment report for Germany. Signs of improvement in China are also boosting commodities with copper up 1.0% and crude oil up 2.3%. Crude is also benefitting from anticipation of production cuts coming this month from OPEC and Russia with Kuwait apparently already starting to deliver on its promises.

Markets in the US and Canada may remain active through manufacturing PMI reports and US construction spending later this morning.

While 2017 appears to be off to a strong start it remains to be seen how long the party can last. Germany has already flattened out although the CAC and IBEX are stil climbing up 0.4% today. More importantly, the US Dollar remains strong gaining today against gold and JPY. This could present a big short-term headwind for US corporate earnings which could impact guidance as earnings reports come out later this month.

Chart Signals

Chart Signals: New Year’s Breakouts for Oil, UK 100 and Germany 30

A number of markets are off to a strong start this year, particularly crude oil and European indices with a number of significant breakouts underway. Meanwhile, JPY and EUR have big tests underway that could end with big breakdowns or the formation of significant bases.

North American and European Indices

US 30 is bouncing back from last week’s dip down toward 19,730, rebounding into the 19,890 to 19,940 range. The index remains below 20,000 and the RSI remains below 70 indicating the index remains in consolidation mode overall with a downward correction still possible.

US SPX 500 found support near 2,230 with more possible near 2,220 a Fibonacci level. The index has rebound up toward 2,260 with support rising toward 2,250. Next upside resistance in place near 2,266 then 2,277.

US NDAQ 100 has levelled off near 4,900 a recent breakout point. It continues to attract support above its 50-day average near 4,840 but also continues to struggle with the 5,000 round number as initial resistance falls toward 4,935. RSI holding 50 indicates underlying uptrend remains intact.

UK 100 is breaking out today! The index has cleared 7,110 rallying up toward 7,210 with support rising toward 7,160. RSI breakout from a downtrend signals upward momentum increasing. Next potential resistance near 7,325 then 7,500 based on measured moves.

Germany 30 broke out over 10,500 to start the week and touched a new high on trend near 10,650 earlier today but has since dropped back into the 11,580 to 11,620 range for consolidation. RSI is really overbought but still confirming uptrend so far.

Commodities

Gold is still struggling to build a base in the $1,120 to $1,170 range. A rally last week ran out of gas near $1,164 and the metal price has since slumped back into the $1,146 to $1,154 area recently near $1,150.

Crude Oil WTI is breaking out today! Texas Tea has blasted through $53.50 to an 18-month high carrying on toward the $54.20 to $54.60 area with next potential resistance near $55.00 then a measured $57.00. Rising RSI confirms upward momentum increasing.

FX

US Dollar Index remains under accumulation, digesting recent gains at a higher level trading between 102.00 and 103.50, recently testing the top with support moving up toward 102.90. 

USDJPY appears to be forming a double top with the pair taking another run at 118.60 but failing to get through. Meanwhile the RSI remains below 70 and in a downtrend following a negative divergence to indicate upward momentum slowing. Initial support possible near 118.00 then 116.85.

EURUSD is still testing $1.0360 support which continues to hold so far with a quadruple bottom forming. RSI rising toward 50 indicates downward pressure easing with initial rebound resistance near $1.0465 then $1.0500. On a breakdown, a measured $1.0220 could be tested.

EURGBP has a downswing underway trading near 0.8460 after falling back from 0.8660 with next support, both Fibonacci levels with next support at the 200-day average near 0.8340 then 0.8260. RSI under 50 and falling indicates downward momentum accelerating.

GBPUSD has stabilized in the $1.2250 to $1.2300 range with higher lows for the pair and the RSI following a downward correction indicating that base building continues. Initial resistance on a rebound possible at the 50-day average near $1.2440.

USDCAD remains in an uptrend with the pair holding its 50-day average near $1.3400 and the RSI holding 50 to keep underlying upward momentum intact. Initial bounce resistance in place near $1.3460 then $1.3500 with next support on a downturn near $1.3300.

CADUSD remains under distribution faltering at a lower high near $0.7465 and its 50-day average with next potential support near $0.7410 and $0.7380 both Fibonacci levels. RSI stuck below 50 confirms broader downtrend remains intact.