Exhausted stocks sink retail sales send Sterling sliding

It’s a long weekend coming up in the US and much of Canada. ‎I’ve been thinking that the enthusiasm of traders to hold positions over the weekend would be a true test of whether the current rally has any legs left or is totally exhausted and vulnerable to a correction.

Stocks have rallied on a combination speculation on President Trump’s tax reform package, generally positive earnings and guidance, strong US economic data, institutional short covering and easing political uncertainty following a series of no drama summits with the leaders of the UK, Japan, Canada and Israel.

One of the signs of a rally is that markets respond positively to positive news which is what we saw Wednesday with strong US day driving the Dow to a new all-time high.  On Thursday, however‎ stocks failed  to respond to positive jobless claims and Philadelphia Fed reports a sign that markets may be getting fully priced and vulnerable to a correction.

Overnight and into this morning, stock indices have been sliding with US index futures down 0.3% and Dow futures approaching a retest of 20,500. ‎Overseas, the FTSE is flat while the Dax is down 0.4% and the Nikkei is down 0.6%.

Currency trading has been active today. JPY is rallying while gold is holding on to recent gains as capital leaving rick markets flows back into defensive havens. GBP is getting hammered (you thought I was going to say pounded didn’t you?) back towars $1.2400 after UK retail sales disappointed, ending a postIbrexit hot streak for now. EUR and CAD are down moderately against the US dollar.

‎This action suggests that traders are starting to take profits ahead of the long weekend. News flow is drying up and political uncertainty is starting to loom again. It looks like negotiations over Greece are going to blow through next week’s deadline and into the upcoming European election season with the EU and IMF (read US) still divided over austerity levels and debt relief for the long suffering cradle of civilization.

Meanwhile, debate on the Brexit bill in the House of Lords starts Monday. The government remains on track so far toward triggering Article 50 in March but it remains to be seen if this will happen around the EU Summit being held on March 9-10 ‎or later in the month.

And of course, in the US political uncertainty may be only a tweet away. ‎Following on from his successful meeting with President Trump Monday and speech to the EU Parliament about CETA yesterday, Canadian PM Trudeau meets with German Chancellor Merkel today. Talks on trade and defense are likely to top the agenda.

Some have suggested that Canada could offer advice on how to work withthe new US administration. I think it’s going to be difficult for Germany to get out of the doghouse, however, because the issues related to trade, currency and Greece are structural not political and can’t be easily resolved without sweeping changes to the Eurozone.

Chart Signals: JPY rallies as stocks slump into the weekend

We’re seeing a defensive shift in capital flows as traders take profits in risk markets to finish the week. JPY is leading the charge upward with gold testing resistance. Indices increasingly look overbought, exhausted and vulnerable to profit-taking especially with the US Small Cap 2000 still refusing to confirm recent big cap breakouts, falling away from another failed attempt to break out over 1,400.

North American and European Indices

US 30 is still rolling over and with RSI overbought, looks vulnerable to a correction. The index has fallen back under 20,600 from 20,620 with initial support possible near 20,545 then 20,500. RSI still above 70 but a failure there would signal a correction starting.

US SPX 500 is still drifting back from is recent high near 2,355 falling under 2,350 and on toward 2,342 with next potential support near 2,322 then 2,300. RSI overbought and rolling over suggests upward momentum has peaked and a correction pending.

US NDAQ 100 has slipped back under 5,300 having peaked near 5,314. RSI is extremely overbought suggesting the index is vulnerable to a significant correction. Next support possible near 5,262 then 5,200. 

UK 100 found support at a higher low near 7,255 and has bounced back toward 7,300 but upside remains limited with both the index and the RSI having recently peaked at lower highs. Initial resistance near 7,320 then 7,365.

Germany 30’s correction is deepening as the index falls from a lower high near 11,780 toward 11,700. RSI falling toward 50 indicates upward momentum fading and a downturn pending. Next potential support at the 50-day average near 11,575. 

Commodities

Gold continues to climb toward the top of its $1,215 to $1,245 trading range, with support rising toward $1,240 from $1,234. Next potential resistance at a Fibonacci cluster between $1,250 and $1,255 on trend.   

Crude Oil WTI is sitting on $53.00 trading between $52.80 and $53.20. More support in place at its 50-day average near $52.40 with next resistance near $53.85 the top of an ascending triangle.

FX

US Dollar Index has stabilized near 100.60 consolidating Thursday’s break of an uptrend line and completion of an Evening Star candlestick pattern. Next potential downside support near 100.40 then 100.00.

USDJPY has resumed its downtrend in a big way. Resistance has dropped from 114.05 a Fibonacci level toward 113.20 with the pair trading near 112.80 and next support near 112.35 then 111.25. RSI failing to retake 50 and turning downward confirms downward pressure increasing again.

EURUSD’s latest rebound has been contained by $1.0660 a Fibonacci with the pair retrenching back toward $1.0640. RSI failing to retake 50 indicates broader downtrend remains intact. Next potential support near $1.0600 then the 50-day average near $1.0585. 

EURGBP is on an upswing within its 0.8460 to 0.8660 trading range rallying up off 0.8500 toward 0.8580 clearing its 50-day average in the process. RSI back above 50 confirms upward momentum within a sideways trend.

GBPUSD is sending mixed signals. The pair briefly dipped under its 50-day average near $1.2410 testing $1.2390 before bouncing back toward $1.2430. While this looks like a successful retest, RSI breaking under 50 suggests momentum turning downward.

USDCAD tried to break through $1.3100 resistance but failed, keeping its downtrend and a big descending triangle intact. RSI still under 50 confirms downward momentum. Recently trading near $1.3075 potential support remains in the $1.2975 to $1.3000 zone.

CADUSD has slipped back under $0.7650 but remains in an uptrend above trend support near $0.7630 with more possible at the 200-day average near $0.7610. upside resistance tests possible near $0.7680 then $0.7700 and $0.7725 near a Fibonacci cluster.

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