InvestMacro

By Admiral Markets 

– We have entered the final stretch of April, with our eyes already set on the arrival of May and, with it, better weather in Europe. Looking forward over the coming weeks towards the summer months, many citizens are intently watching the evolution of the pandemic and the resultant measures imposed by European governments, waiting to find out if it will be possible to fly to their holiday destinations.

As we mentioned at the beginning of March, the arrival of good weather and vaccinations are breathing fresh life into the tourism sector, which has been hit hard by the pandemic. The viability of many companies has been put under scrutiny, leading airlines to trade at record lows due to the measures taken to curb their expansion at a global level.

These measures caused a drastic decrease in the number of flights and tourists last year, seeing only a brief respite during the summer months. This generated heavy losses in the airlines, causing giants such as Air France KLM to be forced to ask for public aid, leading to bailouts; or to carry out capital increases as in the case of IAG.

Although macroeconomic data are improving in the Eurozone as a whole and future prospects are no doubt better, the vaccination process in Europe has not started as expected. This has been largely due to the problems derived from the AstraZeneca and Janssen vaccines. With stoppages and delays in their administration respectively, a rebound in Covid cases has occurred and countries such as Germany are considering taking new measures until June.

IAG Analysis

IAG is one of the companies that has held up best in recent months thanks to the significant amount of liquidity it has had over the past year. This is partly due to its good position in the sector and the capital increase it carried out last September. Despite the problems with the vaccination process in Europe, in the United Kingdom, the process is much further advanced, which benefits the holding company formed by British Airways and the Spanish Iberia.

During the last year, it has been punished heavily, recording lows below 90 GBX. But after experiencing a recovery during the month of November the price has moved in a clear uptrend that has been interspersed with two sideways ranges thus fulfilling the bullish divergence that we could see in the weekly chart between the price and its MACD indicator.

Source: Admirals (Formerly Admiral Markets) MetaTrader 5 – IAG Weekly Chart. Date Range: 17 August 2014 – 26 April 2021. Date Captured: 26 April 2021. Past performance is not necessarily an indication of future performance.

If we focus on the daily chart, we can see that the first of these sideways ranges was overcome in February, when the price was finally able to overcome the upper band of that channel after surpassing the 200 GBX per share and its 200-session average. After that move, the price started another sideways movement between the March highs and the upper band of the previous channel acting as the main support level.

The bullish breakout of this new channel would open the door to a strong upward momentum that could take the price to levels not seen since last summer, thus confirming the change of trend.

Source: Admirals MetaTrader 5 – IAG Daily Chart. Date Range: 17 March 2020 – 26 April 2021. Date Captured: 26 April 2021. Past performance is not necessarily an indication of future performance.

Price evolution of the last five years:

• 2020: -61.40%
• 2019: 1.20%
• 2018: -5.07%
• 2017: 47.65%
• 2016: -27.78%

Air France-KLM Analysis

If we look at the daily chart of this company, we can see how, after falling to lows on 30 October, the price began an uptrend that led it to exceed its 200-session average, forming at that time a triangular consolidation formation that led it to mark highs at 5.90 euros per share.

Since then, the price has begun a correction in the form of a bearish channel that has taken it to the 38.2% fibonacci level after breaking below its 200-session average. It is important that we follow the behaviour of this stock and see if it is able to form a new upward momentum from its current levels, recovering its 200-session average that will lead it to break its current channel to the upside, since otherwise, the price could continue its declines to the 50% fibonacci level.

Source: Admirals MetaTrader 5 – Air France-KLM Daily Chart. Date Range: 8 January 2020 – 26 April 2021. Date Captured: 26 April 2021. Past performance is not necessarily an indication of future performance.

Price evolution of the last five years:

• 2020: -48.41%
• 2019: 4.68%
• 2018: -30.19%
• 2017: 162.47%
• 2016: -26.30%

Lufthansa Analysis

If we focus on Lufthansa, we can observe that last year this company suffered a sharp decline from €15 per share in February 2020 to reach the annual low of around €6.80 per share. During the last quarter, and after the announcements from Pfizer and Moderna regarding their vaccines, the price started an uptrend following a channel formation, which led it to set annual highs in March and almost reach €13 per share.

Since then, the technical situation is very similar to what we have seen in Air France-KLM. The price started a correction following a bearish channel that has taken it to the 50% fibonacci retracement level. As with the previous case, we will have to keep a close eye on its evolution in the coming weeks and see if the price is able to overcome its current channel to the upside, as this breakout would open the doors to a renewed upward momentum to its annual highs.

Source: Admirals MetaTrader 5 – Lufthansa Daily Chart. Date Range: 8 January 2020 – 26 April 2021. Date Captured: 26 April 2021. Past performance is not necessarily an indication of future performance.

Price evolution of the last five years:

• 2020: -34.10%
• 2019: -16.70%
• 2018: -35.87%
• 2017: 150.36%
• 2016: -15.75%

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By Admiral Markets

By TheTechnicalTraders 

– A recent Forbes article highlights the incredible increase in market leverage since the start of the COVID-19 crisis.  There has never been a time in recent history where market leverage has reached these extreme levels.  Additionally, highly leveraged market peaks are typically associated with asset bubbles.

The easy money policies and global central bank actions have prompted one of the longest easy money market rallies in history.  Historically low interest rates, US Federal Reserve and global central bank asset-buying programs, and extended overnight credit support have prompted some traders and investors to move into a more highly leveraged position expecting the rally to stay endless.  Although, the reality of the global market trends may be starting to cause traders and investors to become a bit unsettled.  Precious Metals, Utilities, and Bonds have all started reacting to perceived fear related to this extended bullish rally trend recently.

My research team and I believe the current market rally will likely continue as capital shifts away from extended market sectors.  We believe the transition away from the new US President and the new policies associated with this change of leadership has already started taking place – which is why Precious Metals, Utilities, and Bonds are starting to trend.  Yet, we believe the momentum behind this current rally is likely to extend through the end of April and into early May 2021.

Custom Volatility Index Shows Bullish Trending & Price Volatility Risks

Our Custom Volatility Index chart, below, shows the US markets have just recently rallied back to previous bullish market trending levels (above 13 on this chart).  Once this Custom Volatility Index reaches these levels, we normally expect two market traits to continue.  First, we expect bullish trending because the Volatility Index above 10~11 strongly suggests an extended bullish trend is in place.  Secondly, we expect moderate price rotation to take place after the Volatility Index reaches levels above 13~14.

It is very common for the Volatility Index to move above the 13~14 level in extended rally trends.  Yet, it is also common for the markets to rotate or retrace after reaching these levels.  Therefore, this Custom Volatility Index chart shows the US markets have moved into extreme bullish price trending and has already reached a peak level near 15 – which suggests we can expect some moderate price rotation within the next 3 to 5+ weeks.

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Whenever the US major indexes trend higher in longer-term extended trends, the Custom Volatility Index typically stays above 10~11 and continually attempts to rally above 12~13.  The “Peak Volatility Channel” on this chart highlights areas of extreme peaks in the markets.  When the Custom Volatility Index reaches this level, price becomes more likely to rotate or retrace a bit before attempting to move higher.

Smart Cash Index Shows Global Markets Need To Break Above 210 TO Begin A New Rally Phase

Our following Custom Smart Cash Index shows the global markets have been struggling to move higher over the past few months.  Even though the US markets have attempted to rally to new highs, the Smart Cash Index chart shows this recent rally has not been seen in the global markets.

My team and I believe the next rally phase in the markets must initiate with the Smart Cash Index chart rallying above 210 and representing a moderately strong global market push higher throughout the May/June 2021 time span.  If the Smart Cash Index fails to move above the 210 price level, the we believe a moderate price correction may be setting up for May or June 2021 where the US markets may move moderately lower, attempting to retest recent support, then begin another rally attempt.

Currently, the global stock market and financial system leverage may be an unknown catalyst for some type of future market movements.  The Forbes article suggests these new all-time high leverage levels are likely the result of global central bank policies where traders and investors believe the central banks will continue to support the markets indefinitely.  As much as we would like to think this may be the case, the reality is that, at some point, normalization will take place in the global markets and that presents an ominous deleveraging event in the future.

We are watching how the market’s sectors are shifting trends and how some of the strongest sectors are shifting and weakening over the past 60+ days.  For example, the Russell 2000 had been one of the strongest market sectors up until about 2 months ago.  Now it appears to be trading in a sideways trend – attempting to move back into a bullish price trend.

Our research team believes traders and investors need to be prepared for quickly shifting sector trends over the next 6+ months as this highly leveraged global market event plays out.  Our research suggests a price rotation event is near and the global markets are still trending in a moderately strongly bullish trend. The strongest sectors are going to continue to be the best performers over time.  Being able to identify and trade these sectors is key to being able to efficiently target profits.  You can learn more about how I identify and trade these sectors by registering for my FREE course here.

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Enjoy the rest of your Sunday!

Chris Vermeulen
Founder & Chief Market Strategist

TheTechnicalTraders.com