Deal signed – time to sell the news?

Deal signed – time to sell the news?

23 December 2019 from Carlsquare

On Friday, a preliminary phase I-trade agreement was reached between the US and China where tariffs are slightly adjusted. Further China should increase its purchases of US agricultural products to USD 40-50 billion in the coming years. Just as we wrote before, most of it may have already been discounted in the market. This often results in the reaction that the market “buy the rumor and sell the news”, which confuses the media and ordinary people.

If the market had confidence in the trade agreement reached by the US and China, the soybean price would have exploded by Friday. See graph below.


Also, we have certainly seen an upturn in the market over the past two weeks. But it did not last over the MA50, that is, the trend for the last 50 days.

Above is a picture showing US exports of agricultural products to China. The agreement reached on Friday indicate that exports would be 4-5 times higher than today, corresponding to a doubling from the 2012 peak year.

In fact, bankruptcies are spreading like a fire in the US agricultural areas, where many of Trump's supporters are living. But this part of the trade agreement is nothing but fake news that will never occur.


Above is the real winner of the trade war: Brazil.

The Brazilian stock exchange has also been strong. There are no indications that the Brazilians took Friday's trade agreement as an indication for their exports to decline. See graph below.

China has also managed to adjust its imports and it will take time to restore it. Anyway, why should one? The United States headed by Trump is seen as a big enemy now and China is very likely to throw all sorts of plans on how to get rid of Trump in the next presidential election. It remains to be seen how the Chinese cards will be played.  

Friday´s trading also implies “buy the rumor sell the news”

S&P 500 had another good week as Christmas and year end approaches. The report on the signed phase I-trade deal between China and the US that became public during Thursday night was the main driver of the market move. In the weekly graph below one can see how the index is trading above rising EMA9 and MA20. Momentum is positive:


The previous top from end of November makes up the first support level on the downside. The rising EMA9 and MA20 make up the second and third support Levels.

A similar doji implying uncertainty about the coming direction can be found in the PHLX Semiconductor Sector Index (SOX), an index consisting of companies producing semiconductors with large exposure to China:

Tech heavy Nasdaq looks similar as S&P 500 from a technical point of view, trading above its rising EMA9 and MA20:

EMA9 and MA20 serves as first level of support on the downside.

Tesla testing previous top

If Trump turns out to target Europe on trade, the German auto industry is most certainly going to be hit even more. The Tesla-shares tested previous top from November but did not manage to break above. MACD has generated a weak buy signal and EMA9 and MA20 is rising also making up two support levels on the downside. A possible scenario is that the share needs a set back to gain additional energy to once again test the USD 360-level.

In case of a break on the upside, the next level can be found in the weekly graph below around USD 366 followed by USD 380:


Previous top remains to be broken for OMXS30 

Last week´s trading in Europe was strong. The signed phase I-trade agreement was also here the main market driver. There are some worries in the market that Trump´s next target for trade talks could be Europe. The Swedish OMXS30 index did not manage to close on a new record high, even though with a good attempt. The index is trading above MA20 and rising EMA9. MACD has generated a weak buy signal:


Support on the downside is made up by rising EMA9 and MA20 along with MA50.

Ericson is under pressure  

Swedish Ericsson closed Friday´s trading below Fib 50. Note MACD that has been falling during the consolidation phase and just recently generated a sell signal. The share is trading below a falling EMA9 and MA20 and thus, the Ericson share is under pressure. The next level on the downside can be found around SEK 83.85 and MA100 around SEK 83:


DAX did not manage to hold on 

The German DAX index gaped up on Friday but did not manage to hang on as selling pressure increased during the ongoing trading. The index closed at the short falling trendline serving as a first support. The next level on the downside is EMA9 and MA20:


EUR/USD still under an important level

The EUR/USD-currency pair did a good attempt to break above the important resistance levels between Fib 50 and MA200. But as can be seen in the graph below the USD gained strength against the Euro and a long evening-star doji was created implying that the short rising trend might be tested. The rising EMA9 makes out the first level on the downside followed by Fib 38.2 arounf 1,1081:

Oil getting closer to resistance Levels

The phase I-trade deal is good for oil since it reduces the risk for further weakening of the global economy as an effect of further tariffs. As can be seen in the graph below, the WTI oil price also took a nice move upwards on Friday. The upper border of the rising trend and the 60,5 USD/barrel-level is merging, making up a first resistance level to the upside. In case of a break above, the next level can be found around 63 USD/barrel where the WTI oil price topped in September.

A rising EMA9 and MA20 makes out first and second support levels on the downside.

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This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

17/04/2021 14:19:58


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