Equities On the Brink Of a Breakout

We still see the development of a constructive outlook for risk appetite in the market. This has driven equities strongly higher early this week. This risk acceleration has just had the reins pulled slightly early today as Treasury yields have just pulling marginally lower and the dollar has reclaimed some of yesterday’s lost ground.



However, it is interesting to see the Australian dollar holding up relatively well (which would reflect a broadly improved risk environment), whilst we are also seeing gold continuing to correct back. Wall Street sits on the brink of a breakout to multi week highs and with futures looking mixed, this could be “will it, won’t it” day for a move which could herald the next bull leg in the recovery. It is interesting to see that which this improvement in risk has been taking hold, there has also been significant renewal of selling pressure through oi. The sabre rattling of a war of words between Donald Trump and Iran over gun ships in the Persian Gulf has not escalated and the focus has turned back on the massive oversupply due to the plunge in demand, and also the lack of storage capacity in the US. This is not a cocktail that supports oil prices for long.


Wall Street ended another session with good gains, as the S&P 500 closed +1.5% higher at 2878. However, with the E-mini S&P futures a shade lighter today (-0.1%) there has been a consolidation in Asia overnight, with the Nikkei -0.1% and Shanghai Composite -0.1%. European markets look supported early today, with FTSE futures and DAX futures both +0.3%.


In forex, there has been a slight paring of yesterday’s losses. NZD is the main underperformer, with marginal weakness across the rest of the majors, aside from JPY which is holding up relatively well.


The big moves continue to be seen in commodities, with gold -1.0% and back under $1700 whilst silver is -2.0% lower. Being long of oil is also being very damaging with WTI -13% and Brent Crude -4%.


We are looking towards US data on the economic calendar today. At 1500BST the Conference Board’s Consumer Confidence data is released. Perhaps unsurprisingly, confidence is expected to have taken a nose dive in April (the first full month of lockdown) and plummet to 87.9 )down from 120.0 in March). This would be the lowest reading since June 2014. The Richmond Fed Composite index is at 1500BST and is expected to join other regional Fed surveys and slide hugely in April, down to -34 (from +2 in March).


Gold


With a second close lower in the past two sessions, already threatening to turn into a third today, the outlook for gold is deteriorating. We have been talking about the near term importance of the pivot at $1702 and the support of this pivot has been decisively broken today. With this coming as momentum indicators are starting to deteriorate, we must turn at least cautious of the outlook for now. This at least suggests our bullish outlook is on hold for now.


In recent weeks, the old March high at $1702 has become a gauge for the near term outlook. Breaking back underneath it this morning puts the bulls on the defensive again. Looking on the hourly chart, at the least, it looks as though the near to medium term outlook is now a range play. We have previously discussed the mini top and bottom patterns that form based around the $1702 pivot, and another downside break of the pivot has opened the $1660/$1670 band of support now.


The hourly chart shows support now of a range between $1660/$1670 and resistance of $1738/$1746. The pivot is now a barrier to gains and although there is a minor initial support at $1690 which is holding early in the European session but a breach would effectively open the range lows again. A confirmation (closing) breach of this pivot will suggest that playing this range is now the near to medium term strategy.


Good Trading,

Dom

Dominik Stone

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