The plunging price of oil remains a big drag on market sentiment as West Texas Intermediate drops ever closer to the psychological $30 level. This oil weakness is putting equity markets in a near perpetual state of concern and until the price finds a floor it will be very difficult for traders to start feeling good about themselves. At least the People’s Bank of China has for a second consecutive day broadly kept the mid-point for the yuan around flat, which is generating some support for the yuan. Earnings season kicked off in the US overnight with Alcoa (Aluminium Company of America) reporting Q4 earnings. Whether a beat on earnings (surprise, surprise) and a slight miss on revenues become a consistent theme for the season as a whole, but it is an interesting start. Asian markets closed lower with Japan playing a bit of catch up after a public holiday, whilst European markets are again mixed in early trading.
In forex markets we see a reduction in risk appetite again with the riskier Kiwi and Aussie dollar lower, whilst the safe havens (euro and yen) are doing well. Gold has found some support after two negative days whilst oil is under increased pressure as both WTI and Brent Crude close in on $30.
Once more there is little for traders to get their teeth into on the economic calendar with just UK industrial production at 030GMT. The forecasts suggests the year on year data will stay at +1.7%.
Chart of the Day – USD/CHF
Dollar/Swiss has been in an uptrend channel for the past 8 months, but within that trend channel there is a tighter uptrend that links the August, October and recent December key lows. The bottom of this trend line gives support around 0.9870 today and all but caught yesterday’s low before the intraday rally kicked in. Corrections have consistently been uses as a chance to buy over the past few weeks and once more the weakness over the past few days is an opportunity. The rising 89 day moving average is also doing a strong job as the basis of support (around 0.9880). The RSI is confirming the recent sequence of higher lows but the Stochastics are contradicting this with a corrective outlook. This may mean that there could be another opportunity to buy today after yesterday’s strong candle followed Friday’s inverted hammer candle. I would expect the market to push back higher to retest the 1.0125 January high in the coming days, whilst the hourly chart suggests there is another recovery building in process which could give a buying opportunity in the next day or so.
Yesterday’s candle corrected the late Friday rally and has put a more negative outlook to the near term picture. Closing a trading daily range of around 120 pips towards the low of the day is very rarely going to be a positive signal, so this is a move which has continued the 4 week downtrend channel (despite the intraday spike above it), with the RSI confirming the channel and the Stochastics have turned lower again. The could now be a near term squeeze as the trend channel ushers the price lower towards the pivot at $1.0810. The hourly chart shows there is some support building around $1.0850 but if that is breached then a test of the pivot will be on. Momentum on the hourly chart is fairly neutral as the support has come in overnight. The hourly chart shows that since late December there has been resistance coming in repeatedly around $1.0940/50. I am neutral to slightly negative in bias.
The downtrend continues lower with little significant sign of any sustainable move higher. Yesterday’s marginally positive candle was the first such candle this year, however after giving up some decent early session gains the bulls will again feel disappointed. The daily momentum indicators have registered barely a blip of improvement with the move as the tendency for the market to sell into strength continues. It is also notable that the late decline meant that there has been a second close below the $1.4563 old April low and maintains the multi-year lows that date back to mid-2010. The downtrend today comes in around $1.4635 an any gains should continue to be sold into. The intraday hourly chart paints a picture of a stepped decline with old support becoming new resistance and classic downtrend trading. The hourly momentum indicators continue to unwind oversold positions only to be sold into as the downside potential has been renews (eg RSI around 60, MACD lines around neutral. Expect further weakness to retest yesterday’s $1.4490 low and then on towards $1.4345 which is the next low from 2010. The hourly chart shows a resistance band now $1.4550/$1.4600 with further resistance at $1.4640, $1.4725 and $1.4800.
Despite yesterday’s rebound which has left us with the first green (positive) candle on the chart since late December, there is a lot more that needs to be done to suggest there will be any sustainable recovery. If anything, the early deterioration in today’s trading means that the bears have quickly wiped out yesterday’s gains and the low at 116.46 is back in range again. Momentum remains deeply bearish but also stretched, so the downside potential is becoming limited even though the bears are in control. The hourly chart shows that rallies remain a chance to sell and the move from yesterday seems to be an opportunity. The hourly RSI has again fallen over around 60, whilst the MACD lines have unwound to neutral and given another sell signal. There is resistance from the last two days at 118.00 with 118.75 still the key near term level that the bulls need to break through. A consistent move below 117.15 would put a test on yesterday’s low at 116.68 back on.
My bullish assertion that corrections would be bought into seems to be set for a test today as a second consecutive bear candle has put at risk the positive outlook following the base pattern above $1088.70. A third straight negative session would really ramp up the pressure. I have been saying that I was looking for the next buy signal in the $1088.70/$1098 band and this is still the case. I do not like to be too intricate with my technical patterns and I am prepared to accept some near term unwind back to $1077 (the old key floor), but if that is breached then I would be turning negative again. Momentum indicators are just looking to unwind a little excess, with the outlook on the hourly chart still decent. Holding a move back above $1098 would improve the outlook whilst a push above $1112 re-engages the bull control.
Oil just seems to be only going on way at the moment, and that is down! This move into new multi-year lows just continues and the impact it is having on general market sentiment remains deeply negative. The decisive break below $32.40 now means that a drop to test $30 is increasingly imminent. Perhaps oversold momentum can save the bulls? I would not count on it as this is characteristic of a big strong bear trend and there is little for the bulls to hang on to. Use any intraday rallies as a chance to sell. Resistance now comes in initially at $32.10 but the key resistance band remains $34.00/$34.35.