Market sentiment remains positive today, after a meeting with Japanese Prime Minister Shinzo Abe over the weekend seemingly went through without any significant protectionist backlash from Donald Trump. The prospect of Trump’s “phenomenal” tax plan continues to buoy Treasury yields, the dollar and equities into the new week. The next hurdle for Trump’s maverick diplomacy to navigate is a meeting with Justin Trudeau of Canada and how he deals with the NAFTA trade deal. The markets appear to be fairly relaxed moving into the meeting and unless Trump announces that he is going to tear up the agreement, there should be little to negatively impact the improving outlook on the markets once more. From a traders’ perspective it is interesting to see the VIX volatility back below 11, which is into multi-month lows again. This is a reflection of significant confidence that investment managers/traders have in the bull run with a lack of demand for downside cover, however is once more looking a touch complacent again. Although there are question marks over the direction now on safe haven trades such as the yen and gold, as yet there has been no confirmation yet of a decisive deterioration.
Wall Street closed higher again on Friday into all-time high ground, with the S&P 500 up +0.4% at 2316, whilst Asian markets are also marginally higher, with the Nikkei +0.4%. European markets are following higher in similar fashion. In forex, there is little real direction although the yen is weaker today, whilst sterling is a mild outperformer. Gold and silver are slightly lower, whilst the oil price is also a touch lighter as it consolidates after three days of strong gains.
Traders have very little to go on from the economic calendar with no major economic releases due today.
Chart of the Day – FTSE 100
The market has been building for an upside break above 7206 resistance over the past week and on Friday the market made the strong move that confirms the bullish breakout. A two day close above the resistance puts the bulls back in control for a retest of the key high at 7354. The momentum indicators confirm the improvement with the daily RSI back above 60, the Stochastics rising strongly and the MACD forming a bull cross above neutral (which is a strong indication). This comes in a run of bull candles that now have the strength of momentum to push higher in the coming days, with the early move today suggesting the bulls are still in control. The breakout at 7206 is now the basis of support for a near term corrective move, with any near term weakness being seen as a chance to buy. There is now a key low at 7148 but the bulls will certainly be eying the possibility of gains with little real resistance until the 7354 high.
Since topping out at $1.0828 just under a couple of weeks ago the market has broken its recovery uptrend and now started to build a new corrective downtrend. The decline on Friday has continued that move, but also the market is now starting to breach previous reaction lows of the trend higher. This is another signal that shows the bulls have decisively lost control and a new phase is underway. With the momentum indicators sharply in corrective mode and support now being breached, this phase is increasingly turning negative. A confirmation of bear control would come if the support at $1.0577 were to be breached, preferably on a closing basis. Friday’s loss of 16 pips at the close is not a particularly strong negative candle but is a continuation signal, something that the early moves today are also showing. The hourly chart shows a band of resistance now at $1.0650/$1.0665 which is an overhead barrier to gains in today’s session, with the $1.0710 old pivot still key near term. Initial support is $1.0605.
The market seems to have lost direction in the course of the past week. Since the reversal candle four sessions ago that prevented the confirmed break below $1.2430 support, the market has steadied and continues to consolidate this morning. The daily momentum indicators reflect this, with the RSI plateauing just above 50 and the MACD lines plateauing just above neutral. The Stochastics are marginally corrective but with little real conviction. Friday’s candle was very neutral and also reflects a lack of conviction. The hourly chart shows a range play formation with the hourly RSI oscillating between the low 30s to high 60s. Support is at $1.2430 with $1.2470 increasingly a level to watch near term. The resistance is between $1.2550 and the old pivot at $1.2600. Until there is a break below $1.2430 or above $1.2600 the consolidation will continue.
The outlook has improved in the past few days as the market has broken back above the old resistance at 112.50 and started to form a run of higher lows with higher highs. This comes with the momentum indicators ticking higher, but there is still more that needs to be seen before the bulls can approach the market with sustained confidence. Friday’s doji candle leaves the rally lacking conviction, whilst a sustained move above 50 on the RSI, a bull cross on the MACD lines and push above 50 on the Stochastics would all help. The hourly chart shows an old pivot band at 114.00 which is again coming in as a basis of resistance and there is also a series of mild negative divergences on the hourly momentum indicators with the recent push to 114.16. Support is initially at 113.15 before 112.85 is an important low for the recovery to hold on to. If the bulls can sustain a run above 114.00 it would open 115.60 but for now the market is still struggling to maintain the bull momentum.
Has the rally come to an end with the broken uptrend? Although the run higher over the past two weeks from the low around $1180 to last week’s high at $1244.70 has stalled, there are no explicit bear signals that would point to the price being on the brink of a sharp corrective move. The bulls still hold on to the key near term breakout support at $1220. The momentum indicators may have ticked lower but maintain bullish configuration. Furthermore, Friday’s candle closed as a relatively bullish session, hitting a low of $1221 only to bounce to close not far off the highs of the day and a positive close. The hourly chart shows a consolidation is now in process with neutrally configured technicals. The resistance at $1237 needs to be overcome to re-invigorate the bulls but the support between $1220/$1230 is growing. This looks to be a market that is consolidating and contemplating the next move.
The bulls are looking towards a test of the range highs once more, but there is a history of moves into the highs of the range being scuppered and the resistance band $53.50/$54.35 which has consistently been limiting the gains. However, there is little precedence of there being three strong bull candles in a row during this range and this could help to drive bullish confidence, albeit there is little sign of that early in the session. Watch for the momentum indicators pointing to a potential test of the $55.25 resistance, as at the moment, the RSI remains stuck below 60, whilst there is little real improvement on the MACD lines of note. The hourly chart reflects the strong near term momentum however the resistance between $54.15/$54.35 is sizeable and has been limiting the upside since Friday afternoon. There is support now between $52.90/$53.20.