At the breakpoint ahead of Jackson Hole

At the breakpoint ahead of Jackson Hole

23 August 2021 from Carlsquare

As we wrote last week, there was a set-up for a downturn, and it has come with a vengeance. Indeed, markets are now at a breaking point. This means that the Fed conference at Jackson Hole on 26 August will be particularly important. It doesn´t really matter what they say at the conference. It is the reactions of the market that are decisive.

Many probably still believe that the efficient market hypothesis is valid, i.e., that markets reflect all available information at any given moment.

https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp

However, this a typical academic theory that few people working in the market believe in. All information is not at all disseminated in the markets. It is themes, trends as well as supply and demand that drives the prices of individual stocks. Moreover, since 2008, central bank support purchases have created excess liquidity in the markets, completely disrupting the price picture and thus destroying the hypothesis of efficient markets.

Central banks have also become obsessed with market movements. They have long had their own trading rooms and are following what is happening extremely closely, both through the investment banks’ trading desks and analysts, but also through their own resources. You can get a little insight here:

https://wallstreetonparade.com/2021/08/the-new-york-fed-is-not-the-only-place-obsessed-with-market-intelligence-gathering-the-u-s-treasury-does-the-same-thing-in-a-secure-markets-room/

There is no point in collecting information if you are not prepared to act on it, as we assume central banks do.

Once the conference at Jackson Hole gets underway, expect a couple of days of wrestling between the wills of the market. But as the market weighs in on technical nodes, the impact could be all the greater.

As shown in the graph below, the rising trend in the S&P500 index is now being tested. Note the nice bounce on Thursday-Friday August 19-20 on the rising lower trend line. Both the MA20 and EMA9 managed to resume, providing a weak buy signal.

S&P 500 index from January 4th to August 20th, 2021

Zooming in on the 60-minute-chart, we see that the bounce ended exactly at 61.8% Fibonacci. This means that the bulls have not yet managed to take control. Today’s opening could be very dramatic!

S&P 500 index from July 21st to August 20th, 2021

S&P 500 index, weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

Tech stocks have become a little more popular in recent days. Maybe the falling interest rates has something to do with that. Tech-heavy Nasdaq also outperformed the broader S&P 500 index during Friday 20 August.

Nasdaq 100 from January 4th to August 20th, 2021

However, in the one-hour graph below, one can see how 61.8% Fibonacci has been regained. Bulls can thus be viewed as being in control.

Nasdaq 100 from July 22nd to August 20th, 2021

Nasdaq 100, weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

One stock that has regained energy is Microsoft following the announcement that the company intends to raise prices on the MS Office family.

https://www.economywatch.com/news/microsoft-stock-up-7-in-august-time-to-buy-msft/

During Friday’s trading, the share gapped up. The question is if traders will close the gap or if an upside persist. See graph below:

Microsoft share price graph from January 4th to August 20th, 2021

Microsoft, weekly five-year share price graph

Note: Past performance is not a reliable indicator of future results.

Microsoft is also clearly outperforming the FANG-shares. Amazon is clearly under pressure trading just below Fibonacci 61.8 around the psychologically important 3 200 USD-level. See graph below. RSI is on oversold levels. However, stand alone oversold is not a signal to buy in. A more interesting opportunity may appear if EMA9 and MA200 (3 258 USD respectively 3 277 USD) can be regained.

Amazon share price graph from January 4th to August 20th, 2021

Amazon, weekly five-year share price graph

Note: Past performance is not a reliable indicator of future results.

A sign of weakness during falling interest rates in the US is the strengthening of the USD against the euro. As shown in the graph below, EUR/USD is trading close to previous local bottom from March 2021.

EUR/USD graph from January 1st to August 20th, 2021

As shown in the weekly graph below. The currency pair is trading around support in the shape of Fibonacci 38.2. In case of a break to the downside, the next level in the weekly graph can be found close to 1.16 where MA 200 meets up.

EUR/USD, weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

The German DAX index has again fallen below EMA9 after an unsuccessful breakout to the upside. If EMA9 can be regained, another opportunity to break up can appear:

DAX index graph from 25 January to 20 August 2021

DAX index weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

Drama can be found in the OMXS30 index. As show below, the index bounced nicely on MA50 during Friday 20 August. Next is to retake the floor of the rising trend channel. Nevertheless, note how MACD has generated a weak sell signal.

OMX30 index graph from January 4th to August 20th, 2021

OMX30 index, weekly five-year graph

Note: Past performance is not a reliable indicator of future results.

Concerns about China put pressure on copper and has caused the metal price to fall. MA200 functioned as a support on Friday. Is EMA9 at 4,22 next?

Copper, price on futures (USD/LBs) graph from January 4th to August 20th, 2021

Support can also be found in the weekly graph below. Keep an eye on the EUR/USD.

Copper, five-year price graph

Note: Past performance is not a reliable indicator of future results.

Full name for abbreviations used in previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence

Important notice

This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future performance.

30/11/2021 23:13:30

 

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