Oil hit our downside target, GPBUSD sold off big time after hitting exactly our 1.3159 resistance and US equity indices moved lower after we said yesterday that they are not ready to move higher yet but should consolidate. Consolidation means that prices move to test recent lows and then move sideways. This time the lows were penetrated and indices moved lower. By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we do not provide investment advice.
It seems more unlikely that the US Congress can agree on a stimulus package before the presidential election. This certainly seems to be what the equity traders think. At the same time, we have oil prices dropping (and reaching our targets) as global demand is weak. In fact, it’s so weak that Saudi Aramco was reported to lower their prices for Asian markets and still only some of the major buyers increased their purchases. At the time of writing this, WTI crude is consolidating at the 38.2% retracement level that also is the level our projection pointed to. If price bounces from here the next resistance levels at $37.08 and $38.50. Should the slide continue, the support can be found at $34.38.
UK head of government’s legal department Jonathan Jones resigned yesterday. Deepening the slide in the value of Sterling. We said yesterday that 1.3159 to 1.3174 area is a likely intraday resistance day traders are focusing. Our view was that rallies are likely to be sold and we, therefore, look for sell signals in GBPUSD below 1.3194. Cable rallied to 1.3159 and then quite quickly sold off by over 100 pips. The pair is now trading at 1.2967, ie about 190 pips lower. The Fibonacci cluster I mentioned yesterday (at 1.2994 to 1.3013) gave GBPUSD a 50 pip bonce before sellers took control again and forced prices lower.
Sell-off mentality in stocks was accelerated by Tesla (TSLA) that had a -14.83% gap open lower on Tuesday and the stock then dropped further to close at $330.21 or 21% lower than the previous close of $418.32. In Friday’s webinar, I used TSLA as an example when I showed how after an uptrend is broken it makes sense to sell the rallies. Professional TSLA traders did exactly that on Friday and now these short positions have open profits in excess of 20% per share. TSLA has now dropped to an area where 50% retracement, 50-day moving average and channel low coincide. After such a sizeable down move and price closing inside an area where several technical factors coincide we should monitor the price action to see if short-covering and speculative buying begins again. After such volatility, it’s unlikely that this market turns on a dime. Rather we should see if the big money starts to accumulate and then react accordingly. We look for long signals only if there are signs of price consolidating or reversing. Otherwise, we stay on the sidelines.
Let me stress that individual shares are riskier than indices or major currency pairs as stocks can have sizeable gaps beyond your stop levels overnight or over a holiday period. Especially, stocks like TSLA need to be traded using volatility adjusted position sizes (higher volatility = smaller position sizes). TSLA gapped down after it was reported that the stocks won’t be among those considered for S&P500 index.
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Recent macroeconomic data releases
- US Unemployment Claims, 881K (955K expected)
- US ISM Non-Manufacturing, PMI 56.9 (57.0 expected)
- Canadian Employment Change, 245.8K (262.5K expected)
- Canadian Unemployment Rate, 10.2% (10.1% expected)
- US Average Hourly Earnings, 0.4% (0.0% expected)
- US Non-Farm Employment Change, 1371K (1385K expected)
- US Unemployment Rate 8.4%, (9.8% expected)
- Swiss Foreign Currency Reserves 848B
- Australian NAB Business Confidence -8
Macroeconomic data releases today & tomorrow
- BOC Overnight Rate, 0.25% expected
- BOC Rate Statement
- ECB Main Refinancing Rate, 0.00% expected
- ECB Monetary Statement
- ECB Press Conference
- US Core PPI, 0.2% expected
- US PPI, 0.2% expected
- US Unemployment Claims, 838K expected
- US Crude Oil Inventories
You may access the times and dates in the economic calendar here.
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Chief Market Analyst
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