Sluggish stock market

Sluggish stock market

09 November 2020 from Carlsquare

Have the stock exchanges already taken the juice from a Biden victory. At present, everyone has got something – the left can count on a president and the right can count on a divided US congress, which is supposed to hold down the biggest reforms. What the market should keep an eye on is if the Fed comes with stimuli soon. The price rises in bitcoin and gold and the renewed selling pressure in USD testify to this. In Europe, an in our view unjustified rise on the stock exchanges of the garlic countries is seen as a sign that the ECB is continuing to roll out support.

We do not usually look to much at wave theories like Elliot Waves because it is extremely difficult to draw the waves in any adequate way. But feel free to study the 15-minute-graph above. It shows how the US stock market began with a gap upwards in four of the five days of the previous week- a continued rise but decline during the latter part of trading. At the bottom you can see how this is reflected in the MACD. The third wave on Wednesday, when the votes were counted in the United States, was the clearest rising day. After that, the MACD has flattened out. Isn´t it more fun than this?

Above is the trade when Trump was elected in 2016. It was a sharp rise that lasted throughout November on hopes of future tax cuts, which was also delivered. With Biden, tax increases and substantial contributions are expected instead.

In terms of the last five trading days, it is the tech sector that, by virtue of its weight, has kept the stock market under its arms. Virtually all other indices have backed down.

The S&P500 index has hit the ceiling. The falling trend line needs to be broken so that the market does not continue to be in a declining trend, regardless of last week´s rise.

The 2-hour-graph above shows how exactly the space up to the falling trend line was taken out. Whats next? Yes, it is up to the bulls to show that they have some energy left on their side.

Nasdaq is also facing resistance:

The Tesla stock is consolidating in a large wedge – calling for a large move in the direction of the break. Note the falling MACD:

All world stock indices are trading upwards, but no one has taken out previous peaks. Bitcoin, on the other hand, is in a full speed and approaching 16 230. Could it be overshooting?

Meanwhile note that the Euro has gained strength against the USD in recent days. The currency pair EUR/USD is currently trading around the 1.1875-level:

A continued fall for the USD provides support for the stock market and commodities. The gold price broke out from a wedge and has gotten a buy signal in MACD. Is the psychologically important 2 000-level next:

With a rising EUR, European stock markets should be punished relative to the United States (New York). But the DAX index has been a winner. The ECB has begun new support purchases. The next level on the upside for DAX is around 12 730 where MA100 and MA50 meet up:

In Sweden the OXMS30 index is facing resistance. The question is if the previous top from October can be tested or if the index needs a few days to gather some new energy. The latter would not be surprising.

The Boliden share is testing resistance in the shape of MA50 and the ceiling of a falling trendline. Note that MACD has generated a weak buy signal:

The European commission released a relatively gloomy report this week which showed that wave number two of Covid-19 will lower GDP growth again.

However, there is a steady flow of support purchases ahead of us. The central banks signal that they are willing to increase these if required.

In terms of what the various central banks are signaling, the Bank of England is most aggressive, followed by the ECB right now. But in view of the weakening USD, the market is counting on the Fed to increase the pace now that the presidential election has passed.

If you zoom in on the Euro countries, the chart is a bit puzzling. The graph below shows how Covid-19 made everything fall, but where the German stock market has bounced up the fastest while the others remain at a lower level. This is not so strange given that German industry is export-oriented while Italy and Spain are still hard hit by an impoverished tourism industry.

If we adjust to a shorter times series, it appears from the graph that they follow each other slavishly, which shows that the computers are hard-set to search for the least opportunity for arbitrage between the indices.

The Q3 reporting season
Following the past week, 89 percent of the S&P companies have reported their Q3 results. This means that we are approaching a result where 86 percent of the companies have surprised positively in terms of profits and 78 percent on the revenue side. Several of the sectors are above 90 percent positive profit surprises, where non-cyclical consumer goods and health care have performed best. The worst situation has been for energy, utilities, and real estate.

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.

30/09/2022 15:10:26


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