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Bad news is bad news once again

  • Recession fears hit the markets
  • Dow Jones Industrial Average dropped over 600 points
  • Retail sales fell 1.1% in December

Bad news is bad news once again. The US PPI came in lower than expected (6.2% vs. 6.8% expected) but the weak retail sales data spooked the investors as it brought the recession fears to the surface. High interest rates coupled with recession and relatively high inflation is a toxic combination for stocks. This has lifted the bond market that has benefitted from safe-haven buying. As a result yields dropped and gold traded higher. Today’s main event is the Philly Fed Manufacturing index release at 1:30 pm GMT.

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DJDaily 01 19

Lower daily timeframe high in DJ

DJ stays bearish below 33 700. Above the level, the market probably trades to 33 870. Dow collapsed after it failed to penetrate the 34 012 resistance level (I highlighted yesterday) and the bad news suddenly was bad news again! Even though the PPI pointed to lower inflation investors worry about recession as retail sales data came in below expectations (-1.1% vs. -0.8% expected).

DJIA traded down to 33 620 measured move target and continued lower. Technically the lower high at 34 380 indicates weakness in the bigger picture – especially when this weakness appears near the market top that was created in 2021 – 2022.

This could lead to the market breaking the 32 470 support which (if decisive) would open the way to 30 800 or so. This week’s close should be pretty significant technically as it helps us to see if the value buyers are still ready to buy the dips and drive the prices higher or not. A close near to the weekly candle lows would indicate they are not. 

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Dax has tested 15 080

DAX has moved below the bull channel low and is currently trading just below the 15 080 level. Technically the market remains bullish above the 15 080 level so if this is just a quick dip below the support then there’s hope for the bulls. However, if the market honours the resistance levels then the bears are in control. If the 15 080 level breaks decisively (DJ reaction to the data yesterday has increased the risk) then we might well see DAX trading significantly lower.


The 1896 level is the key level for gold

Gold remains bullish above 1896 but has moved outside the most bullish trend channel and has created a lower high so some caution is recommended. Below 1896 the market could trade down to 1866 or so (a measured move target). Gold has fairly strong correlation with the T-Bond market which under current market conditions (bonds rally and yields fall) gives reasons to look for long trades until the 1896 level is broken decisively. Another reason is the weakness in equities. If it continues investors look for safety and allocate money from equities to bonds. The nearest key resistance level is yesterday’s high at 1928. A decisive break above the level could bring the 1998 level into play.

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The Next Main Risk Events

  • EUR ECB President Lagarde Speaks
  • USD Philly Fed Manufacturing Index
  • USD Unemployment Claims
  • USD FOMC Member Brainard Speaks
  • GBP Retail Sales 
  • CHF SNB Chairman Jordan Speaks
  • EUR ECB President Lagarde Speaks
  • CAD Core Retail Sales 
  • CAD Retail Sales 
  • USD Existing Home Sales
  • USD FOMC Member Waller Speaks

For more information and details see the TIOmarkets economic calendar.  

Trade Safe!

Janne Muta
Chief Market Analyst

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