Market Talk – January 15th, 2016
We did NOT elect the Weekly Bearish today in the Dow Jones Industrial
Japan tried to hold overnight gains but by the time the rest of the Asian markets opened it was too late and the selling pressure just increased with time. Nikkei closed down 94 points (-0.5%) but the futures quote dropped an additional 3% (or 500 points) to hit a low of 16,575. Both Shanghai and HSI continued lower with the western markets and all blamed Oil, US data (Empire Manufacturing) and the long US weekend for reasons to be fearful. Oil hit a 12yr low today when both WTI and Brent traded below the psychological $30 mark. Brent continues to underperform and remains under the WTI price. Last seen was WTI at $29.65 (-5%) and Brent at $29.15 (-5.6%); we also saw Nat Gas down 6% at $2.10.
It really is no surprise that European and US stocks markets took all day to find a bid. The DAX, CAC and FTSE were all seen down around 2%-2.5% with an additional 1% loss into the US session. Worth a mention ahead of the weekend is how poorly some of the peripheral stock markets have performed YTD and especially Portugal down 3.8% today (-11% YTD) and also Spain -2.8% today and also down 10%YTD. Towards the close we did see a slight recovery with markets bouncing off of their lows. However, the nerves remain so do not be surprised to see 2% daily move a common occurrence for the foreseeable future.
It really is no surprise that European and US stocks markets took all day to find a bid. The DAX, CAC and FTSE were all seen down around 2%-2.5% with an additional 1% loss into the US session. Worth a mention ahead of the weekend is how poorly some of the peripheral stock markets have performed YTD and especially Portugal down 3.8% today (-11% YTD) and also Spain -2.8% today and also down 10%YTD. Towards the close we did see a slight recovery with markets bouncing off of their lows. However, the nerves remain so do not be surprised to see 2% daily move a common occurrence for the foreseeable future.
Given all of the uncertainty the flight to quality was seen but not as much as could have been expected! Gold rallied $12 to $1091 – not really that much conviction. The US Bond market rallied with many remarking that 10yr notes dipped below the 2% level but even here was only marginal. The US curve saw a flattening theme with 2/10 2bp flatter at 118bp. The best performer were 30yr closing 8bp lower at 2.81%. The US/German 10yr spread closed +156bp. In the peripheral markets Italy saw the opposite effect with their curve. The front end closed 3bp lower at 0.57% whilst 10’s closed 1.57% (only 2bp flatter). Yes, the spread US/Italy is +46bp US over!
Although we continue to see a move into the USD this has not (as yet) been reflected in the DXY. Closing this evening around 99.05 is just a marginal move from yesterdays close. Despite the JPY and Euro performance (+1% and +0.5% against the USD) the weakness of GBP (-1.1%) balanced their strength. As expected we continue to see Emerging Market currencies suffer notably the Turkish Lira -0.85%, INR -0.75% and Russian Rouble -1.8% today.
Socrates Extended Preview for Attendees
We added some additional modifications to the Trader preview site that will go up this weekend. As mentioned, the Trader preview is a special promotion for 2015 World Economic Conference attendees. We are also planning on providing commentary for each level of time. This is still a work in progress and we are progressing at top speed.
Due to these modifications, we are extending the preview for attendees to February 1.
The Dow and 15940
The key level to watch today is 15940 for the close. This is our Weekly Bearish and if it holds for the closing, then we may see a bounce next week. We have Directional Changes every week now into the week of Feb. 8 and the week thereafter appears to be the main target.
Shanghai & Oil
In China, the Shanghai share market broke its major psychological support at 3000. The selling pressure has continued to expand on time here in January as oil also broke its major psychological support at $30. These levels are not really important, technically speaking, but they are more important to fundamentalists.
In the case of Shanghai, the low of last August 2015 at 2850714 has been technically important. Of course, we elected ALL Weekly Bearish Reversals from the June 2015 high. The critical indicator here is the Monthly Bearish Reversal that lies at 3049100. A monthly closing beneath this level will signal that indeed we have a sustainable correction in motion. Keep in mind that ultimately the rally we saw into 2015 did take out three Monthly Bullish Reversals, so this tended to imply that the 2008 low would indeed hold for seven years, which it has done, so far, given the fact it was a seven-year rally from that low.
In Crude Oil, the 2009 low was 33.55. Here, our Yearly Bearish Reversal was 32.20. We obviously elected all four Monthly Bearish Reversals from the April 2011 high. This warned that we would see new lows. Our technical support during January lies at $21-22, whereas our system support lies at the $25-26 zone.Market Talk — January 14, 2016
There was a time when a 2% price swing used to be something to write about! Asia returned a mixed session with the Nikkei (-2.6%) handing back most of yesterday’s gains. The Shanghai (+2%) recovered late in afternoon trading and finally the HSI (-0.56%) was way off of the opening lows. Early data in Japan saw Machine Orders released at -14.4%, which was obviously quite a shock given an expectation of -7.9%, especially when compared to the previous months +10.7%.
Europe had missed the majority of the U.S. late weakness yesterday and opened with a negative bias and did not look back. All core indices closed off of their lows in negative territory (DAX -1.8%; FTSE -0.7% and CAC -1.8%). For a change, it was not the Miners that suffered but the auto makers. After confirming its offices were searched last week regarding a fraud investigation, shares in Renault tumbled as much as 19 percent before closing 10.3 percent down.
A bounce in the Brent Oil price (+2.3%) certainly helped the U.S. market today and even before the cash market opened we had triple digit gains in futures. Stock dealers watched Brent more than they watched stocks today and eventually we saw all indices close higher: DOW +227 (+1.4%), S&P +31 (+1.67%), and NASDAQ +89 (+2%). Late this evening, we saw Nikkei futures trading +1.5% from the Tokyo close. Worth mentioning here is that the sell-off in Nat Gas continued today against the Brent rally when we saw a 6% decline to close the day at $2.13.
Unsurprisingly, the safe-havens lost ground as stocks rallied; at one point we saw gold hit $1071 (-2%) and silver hit $13.81 (-2.4%). U.S. bonds also lost ground with 10yrs gaining 2bp to close at 2.09% and 5’s losing a marginal 1bp to close 1.52%. The 10yr US/Germany spread was last seen +158bp. Italy also closed a little lower with 5’s at 0.6% and 10’s 1.59%.
The USD Index (DXY) saw a small improvement today closing 99.125 (+0.2%), so not too much against the basket. However, GBP did take a hit (at one stage down at 1.4355) just ahead of the BoE rate decision and the minutes release (which were as expected 8:1). The INR was another currency that saw fresh ground when it broke the 68 level (last seen Sept. 2013). This just shows that the nerves remain in many markets and we still have further to go before confidence returns.
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