Hope on deal pushes US stocks while DAX is losing momentum

Hope on deal pushes US stocks while DAX is losing momentum

18 November 2019 from Carlsquare

With the support from President Trump's adviser Kudlow, who emphasized that a trade deal with China is getting closer, the US stock exchange indices rose again to new highs. However, no indications were given on when the trade deal can possibly be signed. New tariffs are planned to be imposed on Chinese goods on December 15th and can thus be seen as some sort of deadline.

S&P 500 is in the weekly graph below trading close to the upper line of a bearish rising wedge-formation that tend to break on the downside: 

 

Also, Friday´s trading created a lonely candlestick, see the graph below to the very right. If you strictly follow the technical setup this opens for the technical formation called the Island Reversal. 

 

Below is an example of the formation Island Reversal and as its name suggests – it’s a bearish reversal formation:

 

The VIX index, which shows the market's pricing of volatility over the next 30 days, declined by 7 percent on Friday 15 November. There seems to be an increasing number of sellers of volatility especially from non-commercial actors. But as we pointed out last week, VIX has fallen to low levels right above 12. Tracking back to July 2019 (see figure below) one may also see how the S&P 500 index fell sharply when VIX was at these levels – which is yet another warning flag.

Nevertheless, all moving averages for the S&P 500 index is moving upwards implying that the rising trend for the index is strong. More positive news about the trade negotiations between the US and China also came during the weekend. This time according to Chinese media which reports that another fruitful call was held during Saturday between China's Vice Premier Liu He, and the US trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

Even if a Phase I-deal would be signed lots of work remains to be done for the two parties to set the terms for a long-term deal. US presidential elections is also coming up. We believe that China is more likely to sign a long-term deal with a democratic rather than a republican president.

The healthcare sector usually experience challenging times ahead of a presidential election since it is usually popular to threaten with price cuts on drugs to win votes. Trump launched such a program on Friday, but the impact on the stock market was the opposite of the expected since the health care sector rose by 2.2 percent. The reason for this was instead that Democratic presidential candidate Elizabeth Warren presented an election promise that Obamacare could be extended to young people and new groups that are not covered today. In addition, she suggested that the restrictions on private healthcare alternatives be delayed by 18 months into her intended presidential term.

Warren triangles in her play against other Democrats who also suggest major contributions to the health care sector. Warren has been a favorite on the Democratic side, but she has lost some support as of lately.

As shown in the graph above, Warren continues to lead, followed by Biden, who is relatively stable in his figures. Those who have gained ground lately are the challengers Pete Buttigieg and Bernie Sanders.

In addition, Pete Buttigieg is leading the polls ahead of the first nomination election to be held in the state of Iowa in February 2020. This could pave the way for a massive scrap on the Democratic side.

If you look at the odds at the betting agencies, it is still a completely open field between the presidential candidates.

 

A bet on incumbent Donald Trump gives just 2.25 times the money while Biden and Warren bringseven times the money, while Buttigieg gives nine times and Sander 11 USD for every dollar spent. Once the Democrats have elected their candidate, the odds will of course even out between Democrats and Republicans. 

Nasdaq is performing strongly 

The tech-heavy Nasdaq index managed to close the week above the first level of its extension of the Fibonacci sequence. The next level on the upside can be found around 8 440. As for S&P 500 the momentum of the rising trend is strong but in case of a set back, Fib 123.6 serves as its first level of support followed by EMA9 and MA20:

DAX and OMXS30 is losing momentum  

The German DAX index did not manage to set new all-time-high. Instead DAX consolidates right above the second level of its extended Fibonacci sequence. Well worth noticing is that MACD has generated a weak sell signal as pointed out in the graph below:

 

There are however several support levels on the downside, ranging between EMA9 to the extended Fib 123.6. In case of an upwards movement in the index, the first level on the upside can be found around 13 356 in the form of the third level of the extended Fibonacci sequence.

Potential money laundering activities in SEB compacted the Swedish OMXS30 index on Friday. But OMXS30 still managed to close right above the first level of its extended Fibonacci sequence with MA20 serving as support. As for DAX, the MACD has also generated a weak sell signal. In case of a break of MA20 the next level can be found around 1 730:

 

A somewhat encouraging sign can however be found in the 1-hours graph below. As can be seen the index closed right above its short falling trend. In case of a continued upwards movement, resistance can be found right below 1 780:

Nice bounce in the EUR/USD

The USD weakened against the euro and the pair bounced nicely on the support level around 1.1. Weaker U.S. economic data is combined with the Fed’s Powell’s gentle outlook on the U.S. economy and concerns about wages were likely reasons behind the move. On Friday the pair also managed to close above EMA9 and MA50. The next level on the upside can be found between around 1.108 and 1.110 followed by 1.114. In case of further positive developemnt between the US and China in its trade negotations the demand for USD as a safe haven currency may also fade, causing further potential upside in the pair.

In case the of downward movemet EMA9 and MA50 makes up the first level of support followed by the 1.1-level:

The money laundering risk could now be discounted in the SEB share

In September the Swedish bank Swedbank admitted to deficiencies regarding money laundering and released the confidentiality restriction of an investigation report. As can be seen in the graph below, the Swedbank stock (purple) has also struggled, lagging its sector peers.

The whole money laundering story has increased the risk in Swedbank for fines, especially to US authorities. The costs related to the investigation has also increasingly threatening dividend projections for the share. SEB do now seem to be facing a similar case. But much of this seem to have been discounted during Friday’s trading, when the share of SEB (orange) dropped by 12.3 percent.

Monday’s trading will be important. In case of a bounce upwards there seem to be quiet a huge gap to be closed:

But in case of a continued set back in the SEB share, SEK 80 can function as support. See the weekly graph below:

The Swedish TV-show/journalists that has investigated the bank will send the show on November 27th. This is likely to give more flavor to the story and thus put more information on the table.

H&M stock is trading at an interesting level

As we mentioned in the previous trading note we identified some downside risk in the H&M share. However, the share is now trading close to a strong support level. The brave investor may thus find it attractive to buy at these levels, while others may want to see if the share can break above its EMA9, serving as first resistance. The next levels to be broken are MA50 and MA20…

…but yes, it is difficult to ignore the fact that both EMA9 and MA20 is falling indicating that the short declining trend is strong. In case of a break below the SEK 182-level the next support can be found around SEK 174 where Fib 50 meet up.

Gold, back in a falling trend

Positive head winds for the trade negotiations between the US and China is likely to dampen the demand for gold as a safe haven asset. Gold did an attempt to break above its EMA9 but fell on Friday and is thus still in a short negative trend. The first support level on the downside can be found around 1 446:

However, a weaker USD supports gold and even if a Phase I-trade deal should be signed there remains lots to be done. A cluster of resistance levels can be found between EMA9 and MA50 before the previous top from August/September can be tested.

Legal notice

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.

08/12/2019 23:09:13

 

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