The market could face a risk of a blowdown before Christmas

The market could face a risk of a blowdown before Christmas

den 4 december 2019 författare Carlsquare

While the S&P500 index keeps advancing, the confidence amongst US purchasing managers is on the sloping curve. Short term we do not consider this to be any problem, but in the long term these anomalies tend to adjust themselves. This could be done either by the stock market taking a dive or that the purchasing managers could regain their confidence. Below the rising S&P500 index is illustrated in a light orange line, while the PMI index is the light blue line. It should be noted that the ISM purchasing managers index is traded below the 50-level, which indicates that the economy is contracting.

 

Monday’s PMI reading did not show signs of improvement. Instead the outcome fell below of expectations and the worries about the US economy is once again the topic of everybody’s lips.

Focus for the trade negotiations between the United States and China has now come to the tariffs planned for the 15th of December. When comparing the S&P500 index (blue line below) with the Shanghai Stock Exchange Index (light red line below) this comparison is undoubtedly to the advantage of the United States and president Trump ahead of China and president Xi.

 

While both the US and Chinese economies struggle with a falling momentum, the market has more worries assignable to the status of the Chinese economy. One good indicator is that Chinas global exporting market share is on the sloping curve, as can been seen in the chart below. For an example, US large companies such as Apple relocate their production to Vietnam and other predominately Asian countries, for both security and competitiveness reasons.

 

The political situation in China is tense including the riots in Hongkong. This should send a signal to president Xi to act and a reaction will probably come soon. Our advice is to stay tuned on any further signals from China. The Shanghai stock index is testing downwards in a falling momentum. While we are a little bit surprised that the Chinese authorities do not intervene to lift the Shanghai Stock index, we recognize that the latest PMI figure from China received late this weekend landed at 50.2, which is above the important 50-level indicating a minor growth rate in the economy.

While we approach Christmas and Santa Claus seems to be early off with a Christmas rally on the stock exchanges, a revisit to the FAANG (Facebook, Amazon, Apple, Netflix and Google) shares might be justified. This is to track possible fund managers moves to buy those shares ahead of New Year’s Eve to improve their performance figures. Year-to-date, The Amazon and Netflix shares have seen the worst performance of the five, while Apple and Facebook have been doing very well outperforming S&P 500.

Possible delayed trade deal until after the US elections

The weak US PMI figures on Monday created a risk-averse sentiment among investors. As icing on the cake, Trump announced on Tuesday that an agreement with China might not come about until after the November 3, 2020 election. This would, of course, increase the risk of both the US and China's economies to take even more damage from the trade conflict. The question of whether the US will implement additional tariffs on imports from China as of December 15 as planned is also becoming increasingly relevant.

The S&P 500 gaped down on the news. However, the index recovered nicely from its low during the ongoing trading to close at day high, above Fib 23.6. With a possible continued upwards movement during today's trading, the probabilities of the gap being closed have increased.

In case of continued decline and break down through yesterday's low, the next level is on the downside can be found around 3 065 followed by Fib 38.2 around 3 040.

Nasdaq also gapped down but regained some of its initial losses during the ongoing trading hours. As can be seen in the graph below, Nasdaq also managed to regain Fib 23.6. The next level to recover on the upside is MA20 followed by EMA9:

Fib 23.6 and 8 160 serves as the first two support levels on the downside followed by 8 070 where Fib 38.2 meets up.

OMXS30 breaks down

OMXS30 was similar to S&P 500 and DAX hit by weak PMI figures from the US. However, the index bounced intraday on Tuesday on support made up by MA50 and Fib 23,6. These levels were however broken after the opening in the US. Momentum is falling illustrated by the downwards sloping EMA9 as well as MA20. Further worth noticing is that MACD generated a sell signal. The potential downside is good – the next level can be found around 1665:

 

In case of a continued bounce upwards previous support level, MA50 and Fib 23,6 serves as the first level of resistance followed by EMA9 and MA20.

Scary formation in Volvo 

A clean bearish head-and-shoulder formation can be seen in the Volvo share below. Momentum is falling and a break below the neckline and the formation calls for further downside all the way to SEK137. However, as can be seen in the graph below, there are several support levels to be broken along the way:

 

In case of an upward movement, Fib 23.6 slightly below SEK 148 serves as a first level of resistance.

The season is giving support to H&M  

The fourth quarter is usually a seasonally strong quarter for H&M. This year´s black Friday was strong and has given an extra push to the H&M-share, which also gave the resistance levels of MA20 and MA100 a real test on Tuesday. MACD has generate a weak buy-signal and an actual break above MA20 and MA100 creates good potential upside with the next resistance level around SEK 193:

 

In case of a downward movement in the share, Fib 38.2 around SEK 182.5 serves as a first resistance. A break below and the next support level can be found around SEK 178. Given the current risk in the market it is reasonable to put the stop loss relatively close to the first support Level. 

DAX fell despite better than expected domestic PMI 

On Monday, PMI-figures was also released for Germany. Manufacturing PMI arrived at levels above expectations (44.1, versus. 43.8) and increased for the third consecutive time. That did however not offset the increased worries about the health of the US economy.

After a phase of consolidation, the DAX index closed Monday’s trading clearly below both EMA9 and MA20. The support around 12 960 is still intact but momentum is fading as shown by a falling MACD:

 

On the downside, the next levels can be found around Fib 23.6 and rising MA50. A third level of support can be found slightly below 12 600. On the upside, EMA9 and MA 20 make up the first two levels of resistance.

Can the USD break up above the resistance?

Intesting was that the 10-year yield in the US was up on Monday despite the weaker than expected PMI-figures and thus going against the general risk-off sentiment. Things turned more normal during Tuesday’s trading when rates in the US also fell. Nevertheless, the USD also has lost against the Euro and the currency pair is currently trying to break above the resistance level. MACD has generated a weak buy-signal. The next level on the upside can be found around 1.1144 where Fib 50 meets up:

 

However, a doji was created on Tuesday and on the downside support exists around the 1.04-level made up by EMA9, MA20 and MA50.

Risk-off creates potential upside in gold

The risk off sentiment in the market was fueled to Gold that broke above MA20 and is now testing resistance levels between 1 483 and 1 485. A continued weak USD should give additional support to Gold and MACD has generated a weak buy-signal:

 

The next level on the upside can be found around USD 1 515. In case of a downward movement, the first support level meets up around 1 445.

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.

2020-01-21 12:53:57

 

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