Pre-Market Analysis And Chartbook: Oversold Bounce Leaves Markets Wounded

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Friday Market Snapshot

S&P 500 2,771 0.86%
DAX 30 11,628 0.77%
WTI Crude Oil 71.47 0.68%
GOLD 1,224 -0.25%
Bitcoin 6,208 0.90%
EUR/USD 1.1578 -0.14%

 

After the worst week for stocks since the February volatility-induced crash, bulls have been able to take a breather so far today, since the major stock indices are all in the green globally. While equities are seeing heavy trading, currencies, commodities, and even bonds are relatively stable after the hectic days across asset classes.

Today’s move has all the properties of an oversold bounce, with the sectors that suffered the deepest losses recovering the most, and with the recently stronger assets being weaker amid the bearish rotation.

Nikkei 225 Futures, 4-Hour Chart Analysis

The Nikkei provides the perfect example for the bearish rotation, with the most important Japanese index barely trading above its recent low, despite being one of the strongest benchmarks globally in recent weeks. Of course, the Yen’s safe haven status also has a key role in the Nikkei’s current weakness, as the currency’s strength hurts equities, but the Dow and the S&P 500 are also showing similar short-term weakness due to the rotation.

FTSE 100 Index CFD, 4-Hour Chart Analysis

In Europe, the FTSE 100 is showing similar signs, as although the British market was relatively strong during the recent rally, it quickly plunged to a new low amid the Italian worries and the surging US Treasury yields.

The great British Pound was also pushing higher against its most important peers lately, but not because of the same reasons as the Yen. Traders have been buying the Pound ahead of the deadline of the Brexit negotiations after the currency got deeply oversold during the summer months.

The other European markets are also just slightly higher today, and the weakness has to be worrying for bulls, since this week’s breakdown could be the end of a lengthy topping process which in turn would point to a full-blown equity bear market on the Old Continent.

Emerging Markets Weak amid Volatility Explosion

VIX (US Volatility Index), 4-Hour Chart Analysis

The regime change in US stock volatility is the most important change of the week, since it could be the start of another extended corrective period or even a long-term top on Wall Street. The Volatility Index (VIX) spiked to almost 30 yesterday, and it remains above 20 in pre-market trading, signaling a deeper risk off shift than any time since the February crash.

The Friday effect, which usually exaggerates the intraday trends in volatile markets before the weekend break, could lead to both a short squeeze and another short-term panic, likely giving plenty of day trading opportunities in stocks today. For today, thanks to the pullback in yields, we are leaning on the bulls side, but in the current market, any rally should be viewed as a shorting opportunity from a broader perspective.

EEM (Emerging Markets ETF), 4-Hour Chart Analysis

Emerging market stocks are also trading well below their August lows, and equities in the segment are clearly underperforming currencies as we expected prior to the selloff. That’s true even as Chinese stocks bounced higher on the much higher than expected Trade Surplus (213 billion vs. 85 billion expected) today, with the release cooling fears regarding a major slowdown in the country due to Trump’s trade war.

All-in-all equity markets don’t look pretty, even as they are clearly oversold from a short-term perspective, and emerging markets, together with European markets seem to be ready to lead the way lower again.

ChartBook

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

Nasdaq 100 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

EuroStoxx50 Index CFD, 4-Hour Chart Analysis

Shanghai Composite Index CFD, 4-Hour Chart Analysis

Forex

EUR/USD, 4-Hour Chart Analysis

USD/JPY, 4-Hour Chart Analysis

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/USD, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Gold Futures, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

Featured image from Shutterstock

2018-10-12 06:15:00

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