Weekly Market recap 3: How the fear started and what's next
Hi everyone!
How the fall began
Over and over again, I notice that the decline of the US market is often provoked by a fall in oil prices. You may argue about the cause and effect in this case, like maybe it was opposite, the Oil might contribute to the decline in stocks. However, look at the charts of S&5500 and Brent Crude Oil. The substantial move started first in Brent on September 2nd when it confidently broke the support at $44.00 with a full-body black candle (pale red arrow). Only on September 3rd, the stock market tumbled(dark red arrow). That's how fear began.
Now, Oil tries to retest $44.00, as the support became resistance or a mirror level. I think as long as the Oil is below $44.00, without any viable signs of the breakout up (like ascending triangle or narrowing consolidation near $44.00), the bearish mode in the markets across the board will likely to continue.
Not in safe-havens though.
As investors are desperately trying to preserve the value, the US dollar shows a lot of evidence of strength, at least in the short-term.
The perspective on safe-havens
But let's look at the big picture of the greenback first. On the Weekly chart, I drew two alternative trendlines. If we follow the black one, the USD is in more trouble than it seems: DXY broke the black trendline at around 94.00, and now it only tries to retest the line as it became resistance, before the downtrend continuation. Notice, however, you don't want to see a full-body candle when you expect a merely retest, but that's how the last week played out.
The orange trendline represents the scenario of a possible rebound and the long-term uptrend continuation. Following the "orange" scenario, let's check a shorter-term DXY chart. On a Daily chart what I saw before as some nasty range that didn't look like anything, now is a pretty complete H&S pattern! On September 23rd the market broke out the key "range" boundary at 94.00 and didn't seem going back into the range.
If the uptrend in DXY continues, I expect a nice trend continuation setups in USD pairs. The levels 95.00 and 96.00 can be the first targets for the long trades.
JPY, as a second safe-heaven, also showed strength against other majors, although not to the same degree as USD. I'll look into bullish setups in JPY against anything else except USD as well.
What's next
As the fear mode continues, people avoid risk, making AUD and NZD the weakest currencies currently. European Majors, along with CAD, seem quite neutral. If you missed buying the strongest(USD) against the weakest (AUD and NZD), GBP, EUR, CHF and CAD are the next targets to bet against (excluding exotics), if the sentiment continues.
Again, I'm not sure how to align all of these with the fundamental data or especially, upcoming presidential elections in the US. But I don't really aim to either. It might all have been already pricing in... Trade what you see is a solid approach to rely on. Isn't it?
How the fall began
Over and over again, I notice that the decline of the US market is often provoked by a fall in oil prices. You may argue about the cause and effect in this case, like maybe it was opposite, the Oil might contribute to the decline in stocks. However, look at the charts of S&5500 and Brent Crude Oil. The substantial move started first in Brent on September 2nd when it confidently broke the support at $44.00 with a full-body black candle (pale red arrow). Only on September 3rd, the stock market tumbled(dark red arrow). That's how fear began.
Now, Oil tries to retest $44.00, as the support became resistance or a mirror level. I think as long as the Oil is below $44.00, without any viable signs of the breakout up (like ascending triangle or narrowing consolidation near $44.00), the bearish mode in the markets across the board will likely to continue.
Not in safe-havens though.
As investors are desperately trying to preserve the value, the US dollar shows a lot of evidence of strength, at least in the short-term.
The perspective on safe-havens
But let's look at the big picture of the greenback first. On the Weekly chart, I drew two alternative trendlines. If we follow the black one, the USD is in more trouble than it seems: DXY broke the black trendline at around 94.00, and now it only tries to retest the line as it became resistance, before the downtrend continuation. Notice, however, you don't want to see a full-body candle when you expect a merely retest, but that's how the last week played out.
The orange trendline represents the scenario of a possible rebound and the long-term uptrend continuation. Following the "orange" scenario, let's check a shorter-term DXY chart. On a Daily chart what I saw before as some nasty range that didn't look like anything, now is a pretty complete H&S pattern! On September 23rd the market broke out the key "range" boundary at 94.00 and didn't seem going back into the range.
If the uptrend in DXY continues, I expect a nice trend continuation setups in USD pairs. The levels 95.00 and 96.00 can be the first targets for the long trades.
JPY, as a second safe-heaven, also showed strength against other majors, although not to the same degree as USD. I'll look into bullish setups in JPY against anything else except USD as well.
What's next
As the fear mode continues, people avoid risk, making AUD and NZD the weakest currencies currently. European Majors, along with CAD, seem quite neutral. If you missed buying the strongest(USD) against the weakest (AUD and NZD), GBP, EUR, CHF and CAD are the next targets to bet against (excluding exotics), if the sentiment continues.
Again, I'm not sure how to align all of these with the fundamental data or especially, upcoming presidential elections in the US. But I don't really aim to either. It might all have been already pricing in... Trade what you see is a solid approach to rely on. Isn't it?