Market Overview

7 September 2020

Bulls Take the Stairs, Bears Ride the Elevator

This Monday resembles a day off work on global markets, due to the Labour Day in the United States and Canada. The New York Stock Exchanges (NYSE) as well as high-tech Nasdaq stocks are closed, so the U.S.-listed shares are not traded today. In the last few days, the relative strength of downside correction's volatility in stock prices was also the main driver for all currency pairs, but especially for the forex market instruments with the U.S. Dollar participance. Therefore, the crowded investment community is anticipating that the next stage of a high-intensity fight between big funds and banks would happen on the vast battlefield consisting of major reserve currencies, gold and commodities in their close interrelations. This fight may happen as a post-reaction on the stock indices sentiment in the United States, Europe and Asia, probably beginning from Tuesday or even Wednesday.

Sharp corrections, at last, slightly shook the markets. But, that's a course of nature when bulls usually take the stairs, while bears ride the elevator. The cream of this joke, or a trader's proverb, is that buyers join the slowly accelerating movement at different stages, not in cahoots, and most of them do not rush anywhere much, so they add some assets to the portfolio in quite different days as their own investment plans mature. But during a sale-off, everybody tries to take profits and run away from the same expensive assets much more quickly, because the profits dwindle, and one needs to catch the proper price and to saddle the last car as quickly as possible.

So far, the scale of the two-day drop in the American stocks did not look as a really big threat for the mid-term market's mood, as the fall was limited within the 38.2% Fibonacci retracement if to compare the two-floors down move on bearish "elevator" with a long and winding but powerful and step by step growth since May. Yes, the situation may force the currency favourites of the summer, like the Euro, the British Pound or the Australian Dollar to test the next nearest "bottom" levels, in some scenarios. But even that potential "bottoms" may be probably higher than that currency "ceilings" of the first two thirds of July, and it would hardly change the general forex charts' picture too much. The main reason to feel so is the fact that any "protective" purchases of the Greenback or the U.S. treasury bonds on Thursday and Friday were almost negligible.

Most often, such technical corrections are going fast, but later they only help the bulls to start climbing the steps to higher goals again, as the persistent bulls are taking advantage of the rare opportunities to pack their portfolios again with the shares of the famous or just well-known companies on a relatively cheap prices, but setting at least the previous or even higher price targets. For example, the fall in Apple Co stock prices, the scale of which was already estimated in the previous articlewas accelerated by the appendix of excessive temporary profit spike for the shareholders after the recent 4-1 stock split. However, Apple's shares, even in course of a very rapid and shackled fall in combination with many other stocks, could not reach at least the support of $100 per share in the new prices, with a Friday's local bottom near $110 was corresponding to $440 under the old "Julian calendar" before the split, and after almost $550 on the recent highs of September. Before the long weekend Apple shares finish at almost $121 in new quotes, that is, above $480 in the old manner of quoting. A similar pattern was observed for many other highly overbought before high-tech assets, including Amazon, which gained a mega popularity on hype during the pandemic, and now tested the area of $3,100 per share after $3,550 at a recent peak, but closed on Friday's at almost $3,300, which is an example of a very good rebound.

Of course, it is possible that the very bottom of the technical correction has not yet been shown either for these shares or for the entire range of securities. Yet, facts are obvious that most of conservative investors chose to keep their long-term positions intact for now or to reposition using better prices, even despite some usual risks before the long U.S. weekend. European indices did not fall so much at all, simply just because they rose much less over the summer than the overseas assets. The German Xetra DAX 30 and pan-European indexes even gained after Monday noon despite the relatively disappointing German statistical data, with industrial output climbing just 1.2% in July readings published today that was below 4.7% increase expected on average by Bloomberg expert polls. So, the German production remained 11% below its pre-virus level, but there is a hope that the data released now are out-of-date already, as more than a month have gone since July. The Ifo indicator already rose to 15.4 points in August from 14.3 points a month before, and almost all the fresh purchasing manager indexes (PMI) both from the Old and New World were also upbeat.

As for the U.S. data, the PMI figures in manufacturing and service sectors performed admirably last week, and so did the jobs report on Friday. The drop in the unemployment rate by almost 2% from 10.2% in July seems to have surprised even the U.S. President Donald Trump who tweeted immediately: "Great Jobs Numbers! 1.37 Million Jobs Added In August. Unemployment Rate Falls To 8.4% (Wow, much better than expected!). Broke the 10% level faster and deeper than thought possible." Meanwhile, the "peaceful" protesters in Portland tried hard to attack the police by throwing fire bottles, and more than 50 rioters were detained. Donald Trump responded to them with many more emotional tweets. He reposted the documentary videos from Portland and wrote: "Congratulations to the U.S. Marshals on a job well done in Portland. LAW & ORDER!", but the evolving situation is still a source of worries for the markets before the November 3 elections.”

Fundamentally, the U.S. economy has definitely received one more sign from the jobs report to hope for a better recovery, while stocks in Europe and the Euro would be highly likely focus more on Thursday’s meeting of the European Central Bank that may put spirit into the continental investors. Mentioning a wide range of financial stimulus but keeping the quantitative easing (QE) volumes within reasonable bounds as the EU is borrowing more money on bond markets instead of just going on with a "money printer" as the U.S. Federal Reserve does may help markets to gain. 

U.K. government of Boris Johnson is drafting a new legislation that would essentially "rip up the EU Withdrawal Agreement governing the current transition period, putting the U.K. back on course for a hard border between the British province of Northern Ireland and the Republic of Ireland to the south," the Financial Times reported today. Trade deal negotiations between the U.K. and EU has to be finished by October 15, accelerating a deadline that is currently set for the end of the year. The pound has weakened against the euro, and GBP/USD is testing the levels below 1.3150 for now, while the safe-haven U.K. public bonds were higher. The British stock market was mostly unmoved, with the major FTSE stock index of the British Isles even rose by more than 1.5%, probably joining the positive signs from the outside.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Lysakov Sergey
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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