The US dollar rose against a basket of major currencies amid a sharp drop in oil prices. The US dollar index (#DX) closed in the positive zone (+0.22). Investors have started investing in the US currency, as it is a safe-haven asset. This week, experts expect the EU summit, where measures to fight the effects of coronavirus will be discussed.
The EU and the UK resume negotiations on relations between the parties after Brexit, which stopped in early March. In March, the parties managed to conduct only the opening round of negotiations, after which there was an outbreak of coronavirus. A new round of negotiations will be held in the format of a video conference and will last all week. The Scottish government, in turn, asked British Prime Minister Boris Johnson to extend the Brexit transition period by 2 years.
The “black gold” prices are recovering slightly after a sharp drop. Currently, futures for the WTI crude oil are testing the $19.05 mark per barrel. At 23:30 (GMT+3:00), API weekly crude oil stock will be published.
Market indicators
Yesterday, there was the bearish sentiment in the US stock market: #SPY (-1.76%), #DIA (-2.39%), #QQQ (-1.18%).
The 10-year US government bonds yield fell again. At the moment, the indicator is at the level of 0.60-0.61%.
The news feed on 2020.04.21:
– Data on the UK labor market at 09:00 (GMT+3:00);
– German ZEW economic sentiment at 12:00 (GMT+3:00);
– Statistics on retail sales in Canada at 15:30 (GMT+3:00);
– Existing home sales in the US at 17:00 (GMT+3:00).
– The past few weeks and months have been very interesting to see how the global central banks and governments have attempted to position themselves ahead of this COVID-19 virus event. We continue to suggest that we are just starting the process of navigating through this potentially destructive virus event. We believe the sudden onset of the virus pandemic has sent a shock-wave throughout the globe in terms of expectations and valuations that are, just now, starting to become “real”. Let us try to explain our thinking and how this relates to Real Estate…
Before we continue much further, we suggest taking a moment to review our previous research articles related to the Real Estate market which we predicted the selloff and falling values. Both of these articles were at the top of the Yahoo finance and Google with hundreds of thousands the week we posted them:
Real Estate Crash Predicted Part I – Click Here Real Estate Crash Predicted Part II – Click Here
The COVID-19 virus event is a global crisis event that is currently in the very early stages of consumer psychological processing. All types of crisis events prompt some forms of typical human reaction. We believe the Real Estate market may be the next big asset revaluation event as consumers continue to process the COVID-19 virus crisis and the consequences of this event.
Real Estate Cycles
Real Estate cycles typically transition through the following phases as supply and demand functions work through the markets. Pay attention to the middle of this cycle chart. In the Expansion and HyperSupply stages, once supply peaks and prices somewhat peak/stabilize, a transition takes place in the market where buyers chase premium properties and push price levels moderately higher. The Recession Cycle is typically a disruptive cycle that is the result of an economic/income disruption. When people can’t earn enough to satisfy their debt obligations and or provide for their families, then the Real Estate cycle begins to contract.
An event like this, the COVID-19 virus event, would typically start out as a regional/local event. This did happen as it roiled certain areas of China in late 2019. Watching how China attempted to manage and hide the extent of the virus explosion within their country was painful to watch.
The Chinese state media was pushing out information and numbers which didn’t match anything seen on the streets and being reported by others within China/Hong Kong. This “disconnect” and the misinformation presented within this early virus pandemic event is critical to understanding how the world will now deal with this mess. So, keep in mind, everything was somewhat “clicking right along” in late 2019 and early 2020 as China was fooling the world.
Before we continue, be sure to opt-in to our free market trend signals before closing this page, so you don’t miss our next special report!
As it unfolded…
The Chinese New Year celebration fell on January 25, 2020 (Year of the Rat). Near this time in China, hundreds of millions of people travel “back home” to celebrate the New Year with their families and friends. As this travel starts typically 4 to 5 weeks ahead of the date of the New Year, China allowed potentially infected people to travel throughout the world before shutting down travel within China on January 23, 2020. This locked infected and uninfected people into areas within China while the Chinese government began extended efforts to control the virus outbreak.
By early February 2020, the virus had been confirmed in India, Philippines, Russia, Spain, Sweden, the United Kingdom, Australia, Canada, Germany, Japan, Singapore, the US, the UAE, and Vietnam. In essence, the Chinese lock-down presented a very real opportunity for those that had visited China and left to be “locked into location” outside the quarantined areas within China. If they were infected or asymptomatic carriers, these people now became source-spreaders. On February 3, 2020, Chinese President Xi Jinping indicated the Chinese government knew about the virus well before the public alarm was raised – as reported by the Chinese state media.
By Mid February 2020, China had over 40,000 infections and over 900 confirmed deaths related to the COVID-19 virus. Nearly a week later, near February 19, China reported more than 74,000 total cases and 2,100+ deaths. By this time, general global panic had already been set up and this is the point of this article – how consumers respond to a crisis event like a virus pandemic. (Sources: www.aljazeera.com, www.businessinsider.com)
The reason we went through all of this detail is to illustrate how the virus event started as a localized event in China, near the end of 2019. Yet, by early February 2020, less than 35 days later, the virus event suddenly became a global event – panicking the world. The COVID-19 virus event has now turned into a global economic disruption event that has dramatically reduced most people’s ability to earn an income. Businesses and individuals will feel the consequences of this event and we believe the economic contraction is just starting. How do consumers respond to an event like this?
In PART II of this series, we’ll continue to delve into the reasoning behind our research and why we believe the Real Estate market will become very risky for investors over the next 24+ months.
As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders. 2020 is going to be an incredible year for skilled traders. Don’t miss all the incredible moves and trade setups.
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The greenback shows mixed results against major competitors. Financial markets participants expect additional drivers. At the moment, EUR/USD quotes are in a sideways trend. The local support and resistance levels are 1.0820 and 1.0855, respectively. A trading instrument is tending to decline. Today, investors will assess important economic reports from Germany and the US. Positions should be opened from key levels.
The Economic News Feed for 21.04.2020
– German ZEW economic sentiment at 12:00 (GMT+3:00);
– Existing home sales in the US at 17:00 (GMT+3:00).
Indicators signal the power of sellers: the price has fixed below 50 MA and 100 MA.
The MACD histogram is in the negative zone and continues to decline, indicating the bearish sentiment.
Stochastic Oscillator is in the neutral zone, the %K line is above the %D line, which indicates the bullish sentiment.
Trading recommendations
Support levels: 1.0820, 1.0785, 1.0765
Resistance levels: 1.0855, 1.0900, 1.0935
If the price fixes below 1.0820, a further fall in the EUR/USD currency pair is expected. The movement is tending to 1.0790-1.0770.
An alternative could be the growth of EUR/USD quotes to 1.0880-1.0900.
The GBP/USD currency pair
Technical indicators of the currency pair:
Prev Open: 1.24928
Open: 1.24286
% chg. over the last day: -0.38
Day’s range: 1.23890 – 1.24442
52 wk range: 1.1466 – 1.3516
GBP/USD quotes have been declining. During yesterday’s and today’s trading, the British pound has fallen in price by more than 80 points. The trading instrument has updated local lows. At the moment, the GBP/USD currency pair is consolidating. The local support and resistance levels are 1.2390 and 1.2445, respectively. The technical pattern signals a further fall in GBP/USD quotes. We recommend opening positions from key support and resistance levels.
The UK has published mixed labor market data.
Indicators signal the power of sellers: the price has fixed below 50 MA and 100 MA.
The MACD histogram is in the negative zone, indicating the bearish sentiment.
Stochastic Oscillator is in the neutral zone, the %K line is above the %D line, which gives a signal to buy GBP/USD.
Trading recommendations
Support levels: 1.2390, 1.2350, 1.2300
Resistance levels: 1.2445, 1.2490, 1.2520
If the price fixes below 1.2390, a further drop in GBP/USD quotes is expected. The movement is tending to 1.2350-1.2330.
An alternative could be the growth of the GBP/USD currency pair to 1.2480-1.2520.
The USD/CAD currency pair
Technical indicators of the currency pair:
Prev Open: 1.40157
Open: 1.41448
% chg. over the last day: +0.69
Day’s range: 1.41132 – 1.41981
52 wk range: 1.2949 – 1.4668
There is a pronounced upward trend on the USD/CAD currency pair. Quotes have reached key highs. The loonie is under pressure due to a sharp collapse in prices in the “black gold” market. At the moment, USD/CAD quotes are consolidating in the range of 1.4150-1.4200. A trading instrument has the potential for further growth. We expect important statistics on Canada’s economy. We recommend opening positions from key levels.
At 15:30 (GMT+3:00), a report on retail sales will be published in Canada.
Indicators signal the power of buyers: the price has fixed above 50 MA and 100 MA.
The MACD histogram is in the positive zone and continues to rise, indicating the bullish sentiment.
Stochastic Oscillator is near the overbought zone, the %K line is above the %D line, which gives a weak signal to buy USD/CAD.
Trading recommendations
Support levels: 1.4150, 1.4110, 1.4050
Resistance levels: 1.4200, 1.4250
If the price fixes above the resistance level of 1.4200, further growth of USD/CAD quotes is expected. The movement is tending to 1.4240-1.4260.
An alternative could be a decrease in the USD/CAD currency pair to 1.4110-1.4070.
The USD/JPY currency pair
Technical indicators of the currency pair:
Prev Open: 107.478
Open: 107.612
% chg. over the last day: +0.16
Day’s range: 107.307 – 107.793
52 wk range: 101.19 – 112.41
The technical pattern is still ambiguous on the USD/JPY currency pair. The trading instrument is in a sideways trend. At the moment, the local support and resistance levels are 107.25 and 107.60, respectively. The yen is tending to grow against the US dollar. We recommend paying attention to the dynamics of the US government bonds yield. Positions should be opened from key levels.
The news feed on Japan’s economy is calm.
Indicators signal the power of sellers: the price has fixed below 50 MA and 100 MA.
The MACD histogram is in the negative zone, indicating the bearish sentiment.
Stochastic Oscillator is in the oversold zone, the %K line has crossed the %D line. There are no signals at the moment.
Trading recommendations
Support levels: 107.25, 106.90
Resistance levels: 107.60, 107.90, 108.10
If the price fixes below the support level of 107.25, a further drop in the USD/JPY quotes is expected. The movement is tending to 106.90-106.70.
An alternative could be the growth of the USD/JPY currency pair to 107.70-108.00.
Right now the world is facing the worst economic downturn since the Great Depression and many people across the world are going through extremely hard times.
But we also need to try and focus on the compelling positives there are now to create, build and safeguard money to reach our financial goals for ourselves and our loved ones.
The message from Nigel Green, founder and CEO of deVere Group, one of the world’s largest independent financial advisory organisations comes as the International Monetary Fund (IMF) projects global growth in 2020 to fall to -3 per cent. This is a downgrade of 6.3 percentage points from January 2020, clearly a significant downward revision within a very short time period.
Nigel Green comments: “The world has changed considerably in the first quarter of 2020. Coronavirus has sparked a truly global crisis like no other, with a horrifyingly high and tragic number of human lives lost.
“It has also been a monstrous source of economic upheaval and uncertainty for households, businesses and governments.
“But in these most unusual of times, it’s essential to seek the positives and there are increasingly significant reasons within the market to be cheerful.
“Looking beyond the gloom, many investors are using these to create, build and safeguard their money right now.”
He continues: “I believe that there are three main investment reasons to be cheerful.
“First, the market is cheap by historic standards and this represents a major, perhaps once-in-a-generation chance to buy top quality equities at lower prices to bolster investment portfolios. History shows that stock markets always go up over time.
“Second the worldwide loosening of monetary and fiscal policies. This will serve as a bridge for economies until the crisis passes and will go a long way to boost both supply and demand across all sectors. In turn, this will lead to more investment, increased confidence, and longer-term job and wealth creation.
“Third, pent-up demand will hit the global economy when lockdowns are lifted. Many people have not lost their jobs or suffered reduced incomes and have saved money during the lockdown. We can expect demand in sectors such as autos, travel, hospitality and entertainment to be strong.”
Whilst some investors appear to have not only locked down themselves, but also their financial strategies, increasingly both retail and institutional investors are “rightly looking beyond only the dark picture,” says Mr Green.
The deVere CEO concludes. “No economy – developed or emerging – has been spared this downturn, the worst since The Great Depression. The uncertain economic landscape is impacting on people’s lives and livelihoods.
“However, I also would urge investors to mitigate risks to their money and help create and grow wealth by looking towards the undeniable and compelling positive areas amid this tragic and unprecedented global situation.”
About:
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.
As we can see in the H4 chart, after updating its previous high, the ascending wave has reached 76.0% fibo. XAUUSD might have continued its growth to reach the post-correctional extension area between 138.2% and 161.8% fibo at 1798.90 and 1858.60 respectively, but there was a divergence on MACD to indicate a тку pullback to the downside. The support remains at the low at 1451.18.
In the H1 chart, the divergence made the pair reverse and start a new decline, which has already reached 23.6% fibo. The next downside targets are 38.2% and 50.0% fibo at 1634.40 and 1599.50 respectively. The resistance is the local high at 1747.77.
USDCHF, “US Dollar vs Swiss Franc”
As we can see in the H4 chart, the pair continues correcting inside a Triangle pattern. However, the pattern has become so narrow that it can be broken very soon, most likely to the upside. In this case, the price may resume growing to reach its previous high at 0.9901 and then mid-term 76.0% fibo at 0.9982. At the same time, one shouldn’t exclude the possibility that the pattern may be broken to the downside. After that, USDCHF may fall towards 61.8% fibo at 0.9453.
In the H1 chart, the divergence made the pair stop its pullback at 61.8% fibo and start a new growth, which is currently testing the resistance. In case it breaks the level, the instrument may continue trading upwards to reach local high at 0.9797.
Attention! Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.
EURUSD is forming a wide consolidation range around 1.0850. After rebounding from the upside border of the range at 1.0890 and forming another descending impulse towards 1.0858, the price is correcting. Possibly, the pair may grow towards 1.0870 and then move downwards to reach 1.0825. After that, the instrument may start another growth towards 1.0858, thus continuing the consolidation range. If later the price breaks this range to the upside, the market may resume growing to reach 1.0900; if to the downside – form a new descending structure with the target at 1.0750.
GBPUSD, “Great Britain Pound vs US Dollar”
GBPUSD is consolidating around 1.2490. Possibly, the pair may break 1.2460 to the downside and form a new descending impulse to break 1.2400. After that, the instrument may continue trading downwards with the first target at 1.2340.
USDRUB, “US Dollar vs Russian Ruble”
USDRUB is still consolidating around 73.90 without any particular direction. According to the main scenario, the price is expected to grow towards 75.25 and then resume trading downwards to break 73.15. Later, the market may continue falling with the short-term target at 70.50.
USDJPY, “US Dollar vs Japanese Yen”
USDJPY is consolidating around 107.70. Possibly, today the pair may break 107.86 to the upside grow with the short-term target at 108.31. After that, the instrument may form a new descending structure to return to 107.86 and then start another growth with the first target at 108.44.
USDCHF, “US Dollar vs Swiss Franc”
USDCHF is consolidating around 0.9668. If later the price breaks this range to the downside at 0.9650, the market may resume trading downwards to reach 0.9633; if to the upside at 0.9690 – start a new growth with the short-term target at 0.9736.
AUDUSD, “Australian Dollar vs US Dollar”
AUDUSD is still consolidating around 0.6330. Today, the pair may form one more ascending structure to break 0.6360 and then continue growing towards 0.6390. Later, the market may resume trading downwards with the target at 0.6330.
BRENT
Brent is consolidating around 27.00 without any particular direction. Possibly, today the pair may grow towards 28.44. If later the price breaks this level, the market may continue growing with the first target at 30.86. After that, the instrument may correct to reach 28.50..
XAUUSD, “Gold vs US Dollar”
After completing the third descending wave at 1671.00, Gold has broken the channel of this wave. Possibly, the pair may correct to the upside and test 1705.25 from below. After that, the instrument may resume trading downwards with the target at 1668.00 at least.
BTCUSD, “Bitcoin vs US Dollar”
BTCUSD continues growing towards 7300.00. Possibly, the pair may reach this level and then start a new correction towards 7000.00. Later, the market may form one more ascending structure with the short-term target at 7500.00.
S&P 500
S&P 500 is moving upwards. Possibly, today the par may break 2880.2 and then continue growing to reach 2940.5. Later, the market may start another correction with the target at 2700.7.
Attention! Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.
On Monday, April 20th, the major currency pair is slightly falling not far from 1.0868. the coronavirus pandemic and its consequences remain the key trigger for all global financial markets, including both American and European economies.
According to the CFTC (Commodity Futures Trading Commission), earlier hedge funds increased their long positions in the Euro; at the moment, their volume is the biggest over the previous five weeks. The USD can be failed by the rhetoric of US President Donald Trump, who intends to re-open the country’s economy. The plan for relaunching the American economic system, which the White House is currently preparing, implies four weeks of canceled social distancing that significantly hurts both consumers and businesses. However, the country’s states that want to re-open their facilities must show a downward trajectory of coronavirus cases on their territories for at least two weeks in a row. So far, 29 states have qualified, but the numbers may change quickly.
There won’t be a lot of numbers important for EUR/USD this week. The ones that are worth paying attention to are related to the US real estate market: they may show how deep consumers demand and purchasing power plummeted.
In the H4 chart, EUR/USD is moving below 1.0877. in the short-term, the pair is expected to continue trading inside the downtrend towards 1.0750; this movement may be considered as the fifth descending wave. After reaching this level, the price may start a new correction to return to 1.0900. From the technical point of view, this scenario is confirmed by MACD Oscillator: its signal line is moving below 0. Considering that the market may yet continue downtrend, the line also expected to continue moving downwards.
As we can see in the H1 chart, the pair is forming the first descending impulse towards 1.0825. Possibly, today the price may reach this level and then start another correction towards 1.0860. After that, the instrument may form a new descending wave with the short-term target at 1.0785. From the technical point of view, this scenario is confirmed by Stochastic Oscillator: its signal line is moving below 50 and may continue falling to reach 20, thus indicating that the pair may reach the target of the first descending impulse. Later, the line may reverse and move towards 80.
Disclaimer
Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.
After the COVID-19 earthquake and a historical contraction, China is rebounding, whereas advanced economies face a depression-like plunge. The consequent tsunami is about to hit Southeast Asia.
As the total number of confirmed cases may exceed 3 million and deaths will surpass 200,000 in a matter of days, the U.S. and Europe account for more than 80% % of both. What was an epidemic in China at the turn of January and February grew into a pandemic in the 1st quarter, thanks to the belated mobilizations in Europe and the US.
As I predicted in a mid-March briefing (TMT, March 23), what is about to follow is the great coronavirus contraction. Its economic impact will be comparable to the 1930s Great Depression. With more data available today, we have a better idea what’s about to happen, despite extraordinary uncertainty.
No country in Southeast Asia will be immune to the impact.
COVID-19 impact on Southeast Asia
In the coming months, emerging and developing economies will seek to cope with the coming economic tsunami. With weaker healthcare systems, the poorest economies, particularly oil and commodity exporters, will take the heaviest hit.
In January, the confirmed cases in the emerging ASEAN economies varied from presumably none in Indonesia to more than 30 in Thailand.
After the 1st quarter, most saw the cases increase by 10, 100, even 1,000 times. And by mid-April, the largest case counts are in the Philippines, Indonesia and Malaysia (5,100-5,700), Thailand and Vietnam (Figure 1).
Figure 1Cumulative confirmed cases in ASEAN-5
Source: WHO data, Difference Group
Size matters. The bigger the country, the greater the potential for broad COVID-19 spread. However, aggregate figures must also be seen relative to the population size (total cases/1m pop). In this view, the COVID-19 impact has been hardest in Malaysia (164), followed by the Philippines, Thailand (40-60), Indonesia and Vietnam (3-23).
To put these numbers in context, let’s recall that in Singapore (1,024) they are almost 10-fold relative to Malaysia; and in the US, twice as high as in Singapore. On the other hand, wealthier economies, such as the US and Singapore, benefit from more advanced healthcare systems.
Another caveat involves the term “confirmed” cases. The more countries test, the accurately the cases will reflect the actual impact. In this view, Malaysia, Vietnam and Thailand have used significantly more tests than the Philippines and Indonesia. Although recently the Philippine test capacity has been improving significantly.
In part, the difference is a matter of population size. The bigger the country (Indonesia, Philippines), the harder it is to test broadly. In part, it is due to the level of economic development. Upper-middle income countries (Malaysia, Thailand) tend to test more than lower-middle-income nations. Yet there are exceptions (Vietnam).
Economic impact on Southeast Asia
As the outbreak has spread, the disruption of supply chains and temporary plant shutdowns, coupled with a sudden full stop in global demand, weigh heavily on those ASEAN economies that still hope to rely mainly on export-led growth.
As Vietnam, as well as Singapore and Malaysia, have discovered, two years of trade wars and a few months of a global pandemic can undermine a decade of export recovery. In turn, those countries that depend on both tourism and exports (Vietnam, Singapore, Malaysia) must now cope with longer-term economic malaise.
In emerging economies, healthcare systems lack adequate capacity against the pandemic. If these countries had not implemented quarantines and lockdowns, they would suffer disproportionately from new virus clusters and new virus waves in the future. If they implement quarantines and lockdowns that are not adequately enforced, the net effect will be the same. And when these countries successfully execute effective quarantines, these will severely penalize their economies as domestic consumption and the businesses will take a severe hit.
So, the new baseline scenario is that Indonesia, Philippines and Vietnam will all suffer a severe growth contraction in the 2nd quarter that will cast a long shadow over the year. In Indonesia, the contraction will mean a plunge from 5.0% in 2019 to 0.5% in 2020; in the Philippines, the comparable figures are currently seen as 5.9% and 0.6%, respectively.
Better positioned initially, Vietnam’s GDP growth will fall from 7.0% to 2.7%, if it can minimize the virus impact at home. Philippines could have been better positioned against the crisis, but that advantage was largely lost with the spring 2019 budget debacle (compare my column on TMT, Jan 28, 2019).
Assuming a relatively strong rebound scenario, ASEAN economies could have a V-shaped rebound by 2021, when Indonesia and Philippines could perform better than Vietnam (Figure 2).
Figure 2Expected coronavirus contraction in ASEAN-5
Source: IMF data, Difference Group
However, he current baseline scenario may still prove too optimistic. The challenges in the West could linger over the 3rd quarter, while the devastation in emerging and developing economies could spill over the latter half of the year, with adverse feedback effects. A new virus wave could follow in the fall. Imported infections could accelerate toward fall 2020 and spring 2021.
And as the heavily-indebted advanced economies are now taking record-volumes of new debt to support their economies, they could face new debt crises, which would spill over to poorer countries, through trade, investment, and finance. The resulting financial tightening might undermine current progress in many countries – and so on.
Should any of these scenarios materialize, the kind of strong and broad rebound that many international observers currently expect (or rather, hope) would deteriorate into a weaker and slower, longer-term process.
We can all hope for the best, but it would be very naïve not to prepare for worse.
About the Author:
Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net
A version of the commentary was published by The Manila Times on Apr 20, 2020
The DAX30 had a solid weekly close, avoiding a drop below 10,000 points. The reason for the gains on Friday was the news that Gilead Sciences is making progress in finding a treatment for Coronavirus patient, reporting that a Chicago hospital treating coronavirus patients with Remdesivir in a trial were recovering rapidly from severe symptoms.
As a secondary driver, there was the market’s hope of a soon coming re-opening of the US economy, fuelled by US president Trump in a Thursday evening speech which put pressure on state governors to end their lockdowns.
In our opinion, traders should be really careful in regard to the sustainability of this move, since “vaccine speculation” could quickly turn out to be a false hope, resulting in a sharp decline in Equities.
However, in the short-term, we technically stay positive as long as the German index holds above 10,300 points, with 10,830 and 11,000 points as targets on the upside.
This technical picture also fits into the bullish seasonal window for the DAX30 CFD: between April 8 – 27, the DAX, in 16 of the last 21 years, has gained an average of 250 points while, in the remaining five years, dropping by only 95 points, with a max drawdown of 230 points.
Still, we remain cautious and should we get to see a drop back below 10,300 points, the picture darkens, leaves room for a deep correction and drop back below 10,000 points:
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Hourly chart (between March 27, 2020, to April 17, 2020). Accessed: April 17, 2020, at 10:00pm GMT
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between January 3, 2019, to April 17, 2020). Accessed: April 17, 2020, at 10:00pm GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2015, the value of the DAX30 CFD increased by 9.56%, in 2016, it increased by 6.87%, in 2017, it increased by 12.51%, in 2018, it fell by 18.26%, in 2019, it increased by 26.44% meaning that after five years, it was up by 34.2%.
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– The past three weeks have been filled with intense drama, incredible highs and lows, political battles that continue to this day, and millions of questions from people throughout the world. Throughout this COVID-19 virus event and the collapse of the US and global markets, one continued belief has prevailed – the US Fed will attempt to rescue the global markets (again).
Late last week, President Trump announced a task force to evaluate how and when to reopen the US economy and more than US nine states have already committed to a staged reopening process. COVID-19 virus being what it is, the US is going to attempt to lead the way forward. This means every resource and every effort will be taken to engage in a proper process to protect our future while battling this virus outbreak.
This was also a pivotal week for the US Stock market. With the US Fed in buying mode attempting to counter the recent weakness in the markets, literally trillions of dollars have poured into the US stock market over the past 5+ days. The Dow Jones Industrial Average rallied 532 points (+2.2%). The NASDAQ rallied 581.50 points (+7.06%). The S&P 500 rallied 89.25 (+3.2%). Obviously, capital is pouring into the NASDAQ faster than the other major indexes and this suggests investors believe in the earnings and future capabilities of technology companies over more traditional market segments.
Continued global economic weakness and shuttered US states will have a chilling result on Q2 outcomes and revenue growth. We continue to believe Q2 and Q3 of 2020 will be much weaker than investors are expecting and we believe the US Fed has lulled many investors into believing a “deep V bottom” is the most likely outcome. Over time, we believe the loss of 20+ million working Americans and the destruction of the shuttered global economy will translate into much weaker global market price levels.
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NASDAQ (NQ) weekly chart
This NQ weekly chart highlights the real potential for downside risks. The appreciation in price from the 2016 levels are a direct result of investor anticipation of growth after the 2016 election. What’s changed is that a major risk to the markets has unraveled more than all the growth we’ve accumulated over the past 2+ years. Investors should stop to consider the real economic outcome over the next 2+ years before jumping into the Fed-backed Twilight Zone.
As the total scope of the global economic environment continues to shift, it does make sense that certain technology companies may benefit from any type of extended virus event. Gaming companies, technology suppliers and resellers, certain software companies and a host of streaming and content firms may gain users and incomes over the next 12+ months. Yet, we continue to believe the COVID-19 virus event may continue to present risks in the markets going forward.
The NY Federal Reserve issues a GDP Nowcast which attempts to translate forward economic GDP outcomes in near-real-time. The current level for Q1 2020 GDP is -0.4% and -7.9% for Q2 2020. This suggests the second, and possibly third, quarters could be substantially weaker overall than what we’ve just experienced over the past 50+ days. Even though the stock markets began to collapse on February 25, 2020 – we really didn’t begin to understand the total scope of the economic contraction until nearly the middle of March (very late in Q1). Q2 may reflect the complete global economic burden of this virus event and we believe investors are failing to comprehend the total scope of this risk at the moment and how it relates to future earning capabilities.
Weakness in Q2 and possibly Q3 earnings for 2020 could have a shock-wave across many sectors of the US and global markets which we are somewhat blindly ignoring. Asset values, belief in a “V” type bottom setup, lack of disruption for state and local governments and others seem to continue to be the prevailing attitude. With the US Fed to the rescue, somehow investors seem to believe the recovery process will only take a few weeks or a few months.
We found this information very interesting in terms of how local governments generate revenues and how the virus event may present a very real 20 to 40% revenue contraction for state and local governments over the next 24+ months. Based on this data, nearly 40 to 50% of annual revenue to state and local governments may be at risk. When we consider the 20+ million people in the US that have recently filed for unemployment (nearly 6% of the total US population and 8% of the total working population), we can’t expect a stellar economic output.
S&P 500 (ES) Monthly chart
This ES Monthly chart highlights our expectation that the US Stock market will attempt to establish a deeper bottom in price that may take the form of a FLAG formation setup. We don’t believe the continued disruption to the global markets will do anything to support the past 3+ week recovery in the US markets. Global investors will likely end up backing the US as the leader in this recovery, yet we believe the actual bottom in the markets will take place over the next 12+ months and likely complete just before the November 2020 elections.
Concluding Thoughts:
Our proprietary modeling systems have reflected the recent strength in the US stock market adequately – yet they have failed to result in any changes regarding allocation into the markets. For right now, everything stays the same as it was. We do believe the Fed’s buying will potentially prompt a “false trigger” if the rally continues. We will assess the trigger when and if it happens in the near future.
Until we get a more accurate understanding of the risks, we feel it is much safer to assume the worst-case scenario going forward. There is simply no way to paint a positive picture when people throughout the globe are losing their jobs, incomes, and all sense of normalcy. The reality is that this disruption in the global banking and financial sector is certainly a big one that could last well into summer. If you read this article or watch the video you will understand the magnitude of this market top that looks to be forming.
As of right now, skilled investors are preparing for a potentially deeper price bottom and watching what is happening in the markets with interest – waiting for the right trigger to jump on the next big trend.
I have to toot my own horn here a little because subscribers and I had our trading accounts close at a new high watermark for our accounts. We not only exited the equities market as it started to roll over, but we profited from the sell-off in a very controlled way, and yesterday we locked in more profits with our SPY ETF trade on this bounce.
As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders. 2020 is going to be an incredible year for skilled traders. Don’t miss all the incredible moves and trade setups.
I hope you found this informative, and if you would like to get a pre-market video every day before the opening bell, along with my trade alerts. These simple to follow ETF swing trades have our trading accounts sitting at new high water marks yet again this week, not many traders can say that this year. Visit my Active ETF Trading Newsletter.
We all have trading accounts, and while our trading accounts are important, what is even more important are our long-term investment and retirement accounts. Why? Because they are, in most cases, our largest store of wealth other than our homes, and if they are not protected during a time like this, you could lose 25-50% or more of your entire net worth. The good news is we can preserve and even grow our long term capital when things get ugly like they are now and ill show you how and one of the best trades is one your financial advisor will never let you do because they do not make money from the trade/position.
If you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Long-Term Investing Signals which we issued a new signal for subscribers.
Ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.
