When the giant wakes up

When the giant wakes up

20. syyskuuta 2021 - Carlsquare

In this weekly trading note from Carlsquare, the following topics, indices and stocks will be discussed:

  1. China – when the giant wakes up
  2. Happy with a falling copper price
  3. S&P 500 is good…
  4. …but Nasdaq is the winner
  5. Apple fell through bottom of a rising trend
  6. OMXS30 is challenging a strong support
  7. DAX is under pressure
  8. Exposure to China through single stocks. Volvo in bullish wedge formation
  9. Can bitcoin approach September high this week?

The French emperor Napoleon Bonaparte, looking at a map of the world, is reputed to have once said, "China is a sleeping giant. Let her sleep, for when she wakes, she will move the world."

As far as we know, Napoleon never set foot in China. Since the 1990s though, China has woken up and in a few decades after 6-10 per cent annual economic growth is now the world's second largest economy after the United States. China now accounts for 18 percent of global nominal GDP. In terms of consumption of raw materials, China with its industry is a global dominant where the country largely determines the price picture.

Today's Chinese People's Republic is also a one-party, centrally controlled economy with a market economy to serve the goals of the state and the Communist Party. This means that the central decisions give the economy a jerkiness as it is characterized by "stop or go". The interpretation is that China's government today has temporarily slowed down the economy because current raw material prices are considered too expensive for the country's industry. Once raw material prices fall again, it may be time to step on the gas.

China has advanced from fifth to second largest economy in the world, 2000 versus 2021 (GDP, billion USD)

Source: IMF estimates.

Among other news from China last week, the major property development company Evergrande is at risk of bankruptcy. Angry retail investors gathered outside the company's headquarters in Shenzhen demanding their money back. Evergrande has debts of more than USD 300 billion and is now, according to Bloombergs, offering investors to receive their repayments in the form of deeply discounted properties instead of cash payments. The real estate sector has faced demands for reduced leverage from the authorities. The Evergrande share price is down by more than 90 percent since the last peak in October 2017.

This year, the Chinese authorities have taken on many industries with new rules and approaches. The market reacted negatively as the technology sector came under the microscope. The Chinese government has been trying to limit the power of tech companies, in part because they hold a large amount of personal data, which is partly due to their payment services.

Economic Surprise Index (Cesi) for China, 31 October 2019-30 September 2021

Source: Refinitiv Eikon.

The Cesi index of positive and negative macro news surprises relative to Consensus forecasts shown above has gradually fallen back from a peak in May 2020 to now below zero.

China happy with a falling copper price

Of particular interest assessing the Chinese economy is the price of copper. The lower the price, the more attractive it gets from a Chinese industrial perspective to move towards full throttle again.

As shown in the graph below, copper is trading in a falling trend channel. During Friday 17 September, the metal closed below MA20. The next level is made up by MA200:

Copper futures, February 11th to September 17th, 2021

Source: Refinitiv Eikon and Carlsquare

In the five-year weekly graph below, one can see how copper is supported at these levels by Fibonacci 23.6 as well as the rising trendline. Nevertheless, momentum is clearly falling as visualized by MACD.

Copper, weekly five-year price graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

S&P 500, the clear winner. Shanghai is lagging

The Shanghai Stock Exchange Index (SSEC) has risen by only 5.8 percent so far in 2021, compared to a 18.8 percent gain for the S&P500 index and 23.9 percent for Swedish OMXS30 index.

YTD comparison (S&P 500, OMXS30, DAX and SSEC indices)

Source: Refinitiv Eikon

Over the last five years, the Shanghai stock market has only risen by 19,4 percent. This could be compared with the S&P 500, which has increased by 106,5 percent over the same period.

Five-year comparison (S&P 500, OMXS30, DAX and SSEC)

Source: Refinitiv Eikon and Carlsquare

Hence, it has not been possible to get a significant return on Chinese economic growth by being exposed to Chinese equities. It is somewhat contradictory that while China has just about caught up with the US in terms of GDP in recent years, the opposite is true if one compares the New York Stock Exchanges total market capitalization with that of the Shanghai Stock Exchange. The political risk of investing in China's stock markets has proven to be very high. But it is possible that the Shanghai stock market could regain momentum.

Below is S&P 500 that fell 0,9 percent on Friday 17 September on worries about a rising US state debt ceiling and to some extent also worries about effects in the wake of Evergrande bankruptcy in China. Also, options expired on Friday which may have had a finger in the game. Traders tend to trade delta back and forth as it is about close, laying strike during on the date of expiry.

Nevertheless, a fast bounce of MA50 did not turn out to be the case this time. The risk on the downside seems to have increased. MACD is falling and in case of a break on the downside the 4 385-level may be next.

S&P 500 index, February 11th to September 17th, 2021

Source: Refinitiv Eikon and Carlsquare

Also note how the index closed below EMA9 in the weekly graph:

S&P 500, weekly five-year graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

But the real winner seen of a five-year period is Nasdaq 100, being up by over 218.1 percent. That much thanks to the larger “conquering the world-companies” collected in the FAANG-group:

However, Nasdaq 100 fell on Friday by 1,2 percent and closed below MA20. With the optimistic glasses on, one can find support around 15 330. A stronger support level can be found around 15 170, where MA50 meet up:

Nasdaq 100, February 11th to September 17th, 2021

Source: Refinitiv Eikon and Carlsquare

Nasdaq is still trading above EMA9 in the weekly graph:

Nasdaq, weekly five-year graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Apple fell through floor of its rising trend

Obvious the FAANG-member Apple has been under pressure since the EPIC-court ruling. As shown in the graph below, Apple stock closed Friday’s trading below the floor of the narrow rising trend. The next level on the downside is found around 144 USD followed by 140 USD:

Apple share price graph, February 11th to September 17th, 2021

Source: Refinitiv Eikon and Carlsquare

Even though relatively close to its all-time-high, Apple does not look particularly strong in the weekly graph below. As shown, the stock closed last week below EMA9. Also note the negative divergence with MACD:

Apple, weekly five-year share price graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

OMXS30 challenging a strong support

The OMXS30 index is up 64 percent over a five-year period. After a strong opening on Friday 17 September, bears took over. The index is trading just above MA100 under a negative and falling momentum. The SEK is strengthening against the USD as well as the euro, which is not working in favour of Swedish stocks and especially not the big export companies.

OMXS30 index, graph from February 11th to September 17th, 2021

Source: Refinitiv Eikon and Carlsquare

The OMXS30 index is also supported by MA20 in the weekly graph. In other words, there is a strong support in both the daily and the weekly graph.

OMXS30, weekly five-year graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

DAX under pressure

German DAX index closed Friday 17 September below MA100 but close to a support in the shape of Fibonacci 23.6 and a rising trendline:

DAX index, Graph from February 11th to September 17th, 2021

Source: Refinitiv Eikon and Carlsquare

DAX closed last week below MA20 in the weekly graph. DAX is clearly under pressure.

DAX, weekly five-year graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Get exposure to China through single stocks

A good strategy could be to gain exposure to Chinese economic growth through shares in international export companies, of which we have a fair number on the Stockholm Stock Exchange via the OMX30 index. Swedish companies' large exposure to the markets in China and the rest of Asia may explain why the Stockholm Stock Exchange tends to behave like an emerging market in terms of price movements. 

Volvo in bullish wedge formation

As shown in the graph below, the Volvo share is trading in a bulling falling wedge formation. MACD is negative, but has just recently generated a weak buy signal:

Volvo, Share price graph from February 11th to September 17th, 2021

Source: Refinitiv Eikon and Carlsquare

Looking at the weekly graph, Volvo looks kind of scary – even though a bulling falling wedge can be identified even here. This as the share is trading below MA200 and there is pressure from above in the shape of EMA9. MACD has recently also generated a sell signal:

Volvo, weekly five-year share price graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Can Bitcoin approach September highs this week?

Bitcoin is consolidating and currently trading just below Fibonacci 61.8. A break above and the Bitcoin exchange rate may be on its way to previous September high:

Bitcoin, February 11th to September 17th, 2021

Source: Refinitiv Eikon and Carlsquare

In the weekly graph below, one can see how the crypto currency is still trading above EMA9 and that MACD is positive, but the rise is also fading:

Bitcoin, weekly five-year graph

Source: Refinitiv Eikon and Carlsquare. 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

MA50: 50-day moving average

MA100: 100-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.

2.12.2021 4:26:20

 

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