Markets Bounce In Early Trade - Can It Last?

Hi guys, good morning. Welcome to a new month and a new week. What an incredible one it was yesterday. We saw some unbelievable moves in the markets. We'll have a quick look over just how we're trading now. As well, if you were stayed up till 11 PM last night and seen stocks stocks gap down over 500 points, you'd be thinking, well, you'd be coming in this morning to see a lot, lot worse. That isn't the case this morning. The S&P currently up 55 points, the Dow Jones up 530, the DAX 250 as well. So incredible moves this morning as we're seeing. Say Payments has come off a touch as well. Oil nearly up $2. We've just seen over the last few minutes pound come under pressure, uh, as Bank of England have just come out and said they will take all needed steps to protect stability, which has kind of been the, uh, the theme following Jerome Powell on Friday, but the theme that we've seen from central banks over the weekend as well, which has helped our recovery really from gapping lower. You can see here, if we just move over to the the map that we'd like to show, the total confirmed cases, deaths, and total recovered. Over the weekend, this number of new cases has increased, obviously in Italy most notably, cancelling football games, doing masses live on Facebook. The panic and fear is really setting in, and I think that fear is the main thing that gripped markets last week. And I was just reading Anthony Cheung's Macro Menu, and I suppose the link into the chat if you haven't done so already. It really is a fantastic addition on Sunday just to, to get you in the mood for the week. And he was talking about, well, this sort of time last week, but about the, the 3 factors that could really trigger the loss of investor confidence. You can see that last one there, the most influential, fear. If we switch back over to the charts and just bring in the S&P, I'm just going to put this on all of— yet all of last week. And you can see, I mean, it's such an incredible move. But that really was the fear starting to kick in and, and the panic in the markets. I mean, you were seeing, uh, certainly in the Dow Jones, there was minutes where it was doing 100 points a minute, 500 points every 5 minutes in opposite directions. I mean, the range for the day today, if we have a look at the, the low around 24,850, we're already over 1,000 points higher than that. And almost about to hit 26,000. So really is incredible conditions. Volatility absolutely is back in the market. I've got a couple of charts here to, uh, focus on, uh, from more on the European side. But just to put things into perspective, you've got, uh, here even Brexit, 2011 debt crisis didn't hurt Europe so much on a weekly basis. You can see here This is the biggest change, uh, percentage-wise to the downside since, well, pretty much 2008, the, the great financial crisis there, which is, you know, really incredible. You can see here European stocks volatility jumps the highest level since the sovereign debt crisis back in 2011. You know, these charts really will be talked about for quite some time. You've seen here investor panic arises over $1 trillion from the stock 600. And also, you know, to be no surprise here, travel stocks lead the drop among European sectors since the all-time highs that we saw certainly in the, in the DAX. But incredible moves really in the market. It wasn't too long ago, obviously we're talking about Europe there, but even in America we were all-time highs, and, and now, uh, we obviously under 10% lower. That correction, the fastest since the '30s. If we just put a currency tool there, just have a look at the percentage. We were down at 1.16.4%, uh, now currently just under, uh, 13%, 12.2%. Also worth having a look longer-term charts. And if you've read that macro menu from, from Anthony Cheung, you'd have noted where we had found support on Friday's low. Let me just remove pivots here and bring in Fibonacci, which people will look at in, in moves like this when price is, you know, correcting itself lower. You can see— sorry, this is the Dow. I was wondering why it wasn't marked up there nicely. You can see here on the S&P that 50% fib level, also the lows that we had back on October 2019, has provided excellent support. Will this be the low then? Time will tell. One of the reasons we, we gapped lower initially on the weekend was China posted its weakest factory activity on record. You can see here the manufacturing PMI number coming at 35.7. They've been consistently pretty much bang on 50, uh, there or above, there or about. This is the weakest it's been here. Just put in on the 10-year chart make this a column, you can just see just how it's a little dot, little dot bottom right. Put it on the max and you can see just out of nowhere that number appearing. Obviously the coronavirus effect started to filter into markets, and along with new cases being announced this weekend, it wasn't too surprising to see us gap lower. Jerome Powell on Friday evening basically said we're ready to cut rates whenever if needed, and that gave the markets a bit of a boost. And, uh, other than this Chinese data, if I was thinking Friday evening, I was actually saying, well, I reckon, you know, there's a potential that we actually gap up on Sunday. We gap down, and really the Chinese, uh, data the reason for that. However, we have, uh, obviously seen this recovery in early trade. Uh, Japan, uh, Bank of Japan joined the Fed in issuing a rare statement assuring that appropriate actions will be taken. It's priced in that the RBA going to cut interest rates tomorrow. So really, you know, the, the argument for, you know, whether this is going to work as well— you can cut rates, but that's not going to stop a virus spreading. And that is of course true, and it might well be that it's just a momentary halt for, for stocks. There's certainly some very key levels to keep an eye on to the upside. Any of these previous lows. And you know, there was a good tweet I saw, I think it was this morning, but it may have been from yesterday, and it's saying nothing changes sentiment like price. If you suddenly get a massive push to the upside, we break above this previous support that obviously would act as resistance above $30.68, that longer-term trend line comes back into play around probably $31.20, and suddenly things are forgotten about and we can push on and on and on. Oil you see here, you know, might be that, you know, that meeting on Thursday, uh, and the yen— some comments come out that are positive, and suddenly that low around the 2018 low that we saw is also a time where buyers have come back in. We then get back above $50, and well, the worst is behind us. Of course, it's not that simple, and it's going to be a headline-driven market. I'd be very, uh, very wary of things this week. Just because we're having a strong start doesn't necessarily mean you know, each of the next 4 days following this are going to be massively, uh, positive. So central bank's happy to play the whatever-it-takes kind of card. Um, it's, uh, gonna be, it's gonna be an interesting, interesting day. Can this be sustained? Cash open will be something, you know, I'd be very much keeping an eye on. For, for me personally, looking to trade, I'd rather just wait and see how we pan out. It's always a perhaps a tricky day on the Monday, especially when you've had a week of really aggressive selling. You know, this is no guarantee that that's going to continue, and that can obviously catch quite a lot of people out there. So the main reason for the recovery, uh, central banks, uh, to the rescue. Uh, just to summarize, the Bank of Japan, uh, Japan, they're, you know, happy to provide, uh, some, you know, ample liquidity. They're, they're offered to buy ¥500 billion worth of Japanese government bonds. Uh, so yeah, that's, uh, that helping things there. And you can just see the article from Kuroda. Uh, so we have a quick look over at the Nikkei. Sorry, here's the, the article I just posted in. I'm just having a look here at the Nikkei as well, recovering quite strongly. Uh, also what we saw last week, which I think caught quite a lot of people off guard was, was gold. Just bringing this picture, the chart in, you can see Friday, a really strong move lower here. Haven't seen a move like that for quite some time. The last time we moved in either direction, uh, that, that much was, was back in, uh, 2016 Brexit. We are very much contained from the first, uh, from Tuesday, Wednesday, Thursday. There was no real move higher or lower. A lot of people are expecting a push to the the upside. Uh, we obviously, we gapped higher on Monday morning. However, Friday really was, uh, the one that broke the camel's back, breaking that support area and pushing lower quite aggressively. And this was the same during the financial crisis back in 2008. Gold initially did move lower as investors seeked, uh, safer safe havens, if you like, like say T-notes, which you can see if I bring this in here. Had a superb week and pushed quite aggressively to the upside. Gold struggling a bit. That's not to say gold keeps coming lower and lower and lower. If I bring on the financial crisis, let's just bring that into picture, go back to 2008. You can see initially here, this is that push lower, uh, through October, obviously with the Lehman Brothers collapse. And it wasn't really until the back end last week of October that we started to rally. And if you bought there and held till now, you'd be very happy, of course. So overall, it seems like we're just having a bit of a reversal. I would be very patient though, still today, first day of the week, no real range come in. Is the central bank move actually going to last? Should they even cut rates? I think that's a debate for Now, the last coordinated cut from central banks was March 2011, so potentially something there to, to keep an eye on as well. So other headlines to, to go over— I want to keep it relatively brief today as things are moving and it's going to be a very headline-driven market— but China's stock traders are making big bet on fiscal stimulus. So all of these headlines here really going to help to boost stocks this morning. I think it would be more interesting to see how later on pans out, how the cash open is going to take this news. Um, is there going to be further developments in, say, the US? I mean, you know, in Europe where we've already seen that spreading. Uh, just today I got a text message through saying my old school has been shut down for a couple of weeks, so You know, we haven't had what China's had yet, or certainly Italy has to that extent. Once this fear picks up again, it could well be that these decisions to potentially cut rates might come a bit too soon. And if anything, maybe they should just save their ammo. We're obviously in a precious situation, and we've seen stocks have a very bad week, but we're levels that we were just October last year. So I think if I was, uh, Jerome Powell, I would just say, look, you know, it's a bad situation, we just need to take time. And, and once the coronavirus does then, you know, just subside a bit, maybe when the weather starts getting better, etc., then, you know, at least we've still got ammo that if data was to continue to be poor, we can go from there. But Yeah, central banks are, you know, everywhere. The Fed, Bank of England, the Bank of Japan, all out with similar statements over the past 24 hours pledging support to economy in the face of coronavirus epidemic. And China's stock traders expecting similar things. The Fed, if we have a look at the— well, let's just bring it in here— the FedWatch tool for the next meeting on March the 17th. Give me one second just to load that up. March 17th and 18th, you can see we are— once that loads— 100% priced in, uh, for a cut there. So I mean, can you imagine that the scenario if they were to keep rates on hold? I mean, stocks would come down very, very aggressively, uh, on that. Also on the macro menu, you've got the, the calendar highlights. It's actually quite a busy day today, uh, and one where, you know, you're gonna want to be careful of these, these points. Also a lot of speakers, Fed speakers this week. Um, the, the, the week today, you've got obviously the, the UK data out in the morning, Brexit talks starting up again, as if we didn't need, uh, any other headlines to, to take over the market. Brexit is back, uh, with, uh, UK and EU going into to talk tomorrow evening, or I said, well, this evening, tomorrow morning you've got the RBA rate decision, one to keep an eye on with that price, uh, that rate cut priced in. I think that could be really the tone for the rest of the week. If they were to make a surprise and keep rates on hold, well, yes, stocks will come down, but in my opinion, I think that'll probably be the better decision for things to do. I don't think the rate cut at the moment would be too good. Going into the back end of the week, obviously with it being non-farm payrolls on Friday, you're going to have the ADP on the Wednesday. You've got Vienna OPEC meeting starting on Thursday as well. That's day 1 of day 2. So quite, uh, quite an interesting week from a data point of view, let alone with the coronavirus fears that are, you know, shaping the market as well. Other headlines just to run through North Korea marks a year of failed Trump talks with missiles. So as if we didn't need any more issues in the world at the moment, North Korea launching two unidentified projectiles off its eastern coast, South Korea's Defense Ministry said. So we have— whether Trump wants to come out and say anything about that would also be pretty key. The polls But really, the election in the US is starting to just heat up a bit. A few people last week were saying one of the main reasons that we were also coming lower in stocks more aggressively was because of Sanders and his increased chance of actually getting into the White House. Potential for that to increase this week, see how he does in some of the polling. And if Sanders does start to get more of a foothold, and Trump's, you know, naivety with the coronavirus catches up with him, we could well see stocks come lower as well. So yes, it's a very good start this morning for, you know, stocks in the US and Europe, but I would just be careful about getting too carried away. There's that famous dead cat bounce saying I think we all need to be aware of, but it At the moment, a couple of days, uh, positive after 1, 2, 3, 4, 5, 6 down days for the S&P. I would say technically looking at this trade to the upside, the main level I'm keeping an eye on is that 3068, such good support back in November and December last year, uh, and then that could obviously act as a very key resistance level. Above there, you'd got to imagine the central banks have cut rates and maybe the the spreading of the virus has just subsided a touch. Back to headlines, uh, you've got obviously the, the Brexit talks continuing here. And last week the UK outlined objectives for US trade talks worth $4.4 billion. So quite hawkish rhetoric between the two, uh, of, of the UK and EU. Um, there's been, you know, rumors that Brexit talks are about to to break down within 14 days. It's going to be a week for certainly on the, the pound side of things that's going to be headline driven as well. So, you know, while there could well be some, you know, nice technical setups for, you know, the pound— I mean, looking just here, for example, Thursday and Friday's low— again, I would be careful about that risk and waiting for that confirmation. We've already had, and this is comments just from the central bank about doing whatever it takes You know, they've got to bear in mind for pound traders that there's also going to be Brexit comments that, as we know, can spike you out of positions pretty quickly. So just be careful, yeah, is what I would say when trading the pound. Equities as well, it's going to be probably following the similar suit to last week where the mornings are relatively choppy, I would say, and then it's into the afternoon once the Americans have woken up, then you're getting those, the follow-through of there's been new cases here and there. And that's the focus. I mean, we know it's spread here in Europe. We know Italy is, you know, struggling, you know, as is South Korea, of course, in Asia. But in the US, I think from an opportunity to see this reverse, we're going to need to see those numbers pick up in the US. And what time do they get released? Well, 4:00, 4:30, 5 o'clock. UK time, i.e., the US sort of morning into lunchtime. So just because we have a good morning doesn't guarantee that the afternoon is going to be similar. So this is something I would bear in mind. Quick look over the calendar before we have a look over some of the, the technical setups. Uh, we go through the morning, you've got to see that German data 8:55, uh, the market manufacturing at 9 o'clock. Both of those numbers expected to be in contraction territory again. 47.8 for Germany, 49.1 from the EU. Sorry. And then you've got the UK market manufacturing at 9:30. US numbers at 2 o'clock and 3 o'clock. A couple of— well, one speaker scheduled, but as we know, central banks will most likely make these comments throughout the day as well. Quick look over technically, I brought the, the pound into play here. For me, that's your, your key line in the sand. I think actually from an opportunities point of view. If we can get back above that level, I don't see any reason why we can't then push to the, the high that we had on Friday. I know following that Bank of England comment, we're now a fair way off that, but that would be the key level for me. To the downside, if we were to see further weakness on the pound side of things, you can see now we're trading— I mean, this is quite a nice level here, the high that we had on the 11th of over. Uh, could that be the low? I, you know, I'd say that's a— there's a pretty good case for it to be. If that was to hold, then suddenly 1.27 could come in. And then also, I'm liking the look of this level, 1.2624. But if we can get above last Monday's high, I think the pound could have a bit of a rally from a technical point of view. The euro has been pushing higher recently, uh, on the, the dovish bets of the Federal Reserve levels to be aware of. I mean, if you could have given me this point here, 1.1129, a couple of weeks ago, I'd have bitten your hand off for it. Now we're coming up, it's, uh, perhaps, uh, starting to, to get a bit worried. But here you can just see just the importance of this point. You want a line in the sand. Again, that's a pretty good one to have. To the downside, if you were waiting for maybe some confirmation of some dollar strength to come back in, or euro weakness. I think really below 1.1024 would be how I'd be looking to play that. Putting it on a lower time frame, just put the pivots on here. You can see then you've got that range, the pivot coming in for there, and the R2 to the upside. We're just pushing two new highs this morning as the dollar weakens. Uh, stocks gone over the level in the S&P. You can see today's R1, pretty important. We had some support there on, on Thursday, uh, marks up quite nicely. And also you've got the previous high of the day that we broke through around 7:45, 8 o'clock. That's a good enough point as well where you could expect some support. But if we do get below there, things could start to get interesting again. Oil and stocks are going to have a lot of resistance levels to the upside above where we're trading these previous lows. So just be aware of that. And same thing, you know, across the pond for the US stocks and obviously the European ones as well. Any questions, as usual, please do let us know. I would absolutely have a read over Ant's macro menu. I think it's a great addition that he started to do and really can help set up for, for the week ahead. In summary, the central banks are providing us a bounce, whether it be short-term or not, uh, will come down to whether they actually do cut rates. The RBA first on the, the hit list tonight, and whether that keeps getting priced in. Also, any new cases in the US, if that continues to spread and maybe at a more alarming rate this bounce, uh, would be perhaps pretty short-lived. Oil, got to keep an eye, of course, later in the week on OPEC and the pound for any Brexit-related comments. It's expected to be a pretty interesting week. Whether it can top last one or not, I'm not too sure. But I hope you'll have a good one, and any questions, as usual, please do let us know.