Positive risk bias amid exit strategies discussion, earnings season eyed [Video]
As traders get back to their desks following a long Easter weekend, they are met by markets hinting at a fairly constructive appetite for risk. The discussion over exit strategies across the major economies following their periods of lockdown is playing into this improvement in market sentiment, as has better than expected Chinese trade data. With several countries in Europe now beginning to ease lockdown restrictions, President Trump suggests that the US is close to completing its own plan to re-open the country. However, we will begin to get some clarity on the scale of the impact on first quarter corporate data as earnings season kicks off this week. It could make very sobering reading. The big banks report this week, with JP Morgan and Wells Fargo in focus today. Furthermore, although the recovery on equity markets continues today, there is still a significant risk that they are simply bear market rallies. We have not seen the scale of second wave of COVID-19 infections/deaths yet, something that should become a factor as economies reduce restrictions on the movement of their populations once more. For now, the recovery is still progressing, but for how long? Treasury yields are higher, the US dollar less strong, and equities also stronger. After a weekend of tense negotiations amongst major oil producers, driving price volatility, oil is relatively settled today. With estimates of well over 20m barrels of oil per day out of demand, are the OPEC+ production cuts even going to make a difference?
Wall Street closed lower last night (SP 500 -1.0% at 2761) but with the E-mini SP futures +1.2% today there is a decent look to the equities space this morning. Asian markets were positive (Nikkei +3.1%, Shanghai Composite +1.4%) whilst European markets are around 1% higher in early moves. In forex, there is a mild risk positive bias with USD slightly negative across the majors (aside from the underperforming JPY). In commodities, oil is supported early today around a half to 1% higher, whilst gold and silver are trading around the flat line.
There are no key economic data releases schedules for today.
Chart of the Day – FTSE 100
With a strong move higher into Thursday’s close, the FTSE 100 finally managed to follow other major indices in a breakout above the initial March recovery high. Now for the more important part, holding on to the breakout. Futures are looking promising early today as the bulls look to confirm a sustainable breakout. The technical set up is also encouraging, with RSI at a two month high above 50, whilst MACD and Stochastics are also well set in their recoveries. In the wake of last week’s move above 5815, there is now a run of higher lows and higher highs, which is a new trend formation. If the market closes back below the 5815 breakout, it will be a disappointment, but whilst a three week recovery trend is intact, the bulls will remain encouraged (comes in at 5600 today) to buy into weakness. Support of a higher low at 5590 adds further weight to this trend, whilst on the hourly chart momentum is still in recovery mode (RSI consistently bottoming 40/50). So we would still be looking to use any intraday weakness into support as a chance to buy. For upside targets, the 38.2% Fibonacci retracement (of 7690/4899) is the immediate target at 5965 but there is very little resistance overhead and 50% Fib (the equivalent of around where the S&P 500 currently sits) at 6295. Holding above the 23.6% Fibonacci retracement at 5558 maintains the recovery outlook for recovery. Ultimately, though the key will be sustaining the key higher low at 5352.
There has been a huge amount of drama and trading volatility on oil in recent sessions as the prospect of production cuts has been argued over by the major oil producers. As the dust settles on the agreed reductions, the market is still cautious. With three huge negative candles in the past four sessions, and a run of four lower closes in the past five, the trend is one of selling into intraday strength. However, the more optimistic traders will point to the fact that there has not been an instant bottom falling out of the market (the $19.27 key support remains intact) and there is a relatively stable market early today. How traders respond today could be crucial. The hourly chart shows hugely erratic moves, but how the market responds to resistance between $23.50/$25.25 (effectively still a mid-range pivot band) will give a strong indication of where the market is at. Failure to reclaim this pivot band will retain a corrective bias, and selling into strength for a drift towards $19.27. A close above $25.25 would change this.
Dow Jones Industrial Average
On a session of slightly thin trading the Dow closed lower as the bulls just took their foot off the gas of the recovery. Thursday’s breakout came with a slightly cautious candle and this was reflected in yesterday’s session. However, given the strength and support of the key breakout above 22,595 the bulls are looking to continue the run higher. What is remarkable about this recovery is the reaction to the Fibonacci retracements of the 29,567/18,213 massive sell-off. They have been key turning points at every step of the recovery. The use of 23.6% Fib as support two weeks ago saw a rally through to 50% Fib (around 23,890) which formed the basis of resistance on Thursday. That after 38.2% (at 22,550) was the resistance for the first rebound high. With an uptrend of the recovery at 22,665 we look to use yesterday’s weakness as a springboard for the next run higher. We favour a continuation of this recovery, with a retest of 50% Fib and the resistance at 24,009before a continuation towards 61.8% Fib at 25,230. The importance of 38.2% Fib (given it is also the breakout) and the breakout band 22,480/22,595 is significant now.
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