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  • The S&P 500 finds temporary support in the 100-day moving average, with the index down over 2.2% on the day $SPX $SPY $ES https://t.co/LYcRAINMPK
  • A rough start to the week with the cryptocurrency market a sea of red with losses on either side of -10% a common sight. Get your $btc market update from @nickcawley1 here:https://t.co/AUfuM9KIX6 https://t.co/rQd27X1QxY
  • RT @BrendanFaganFx: 77 counterparties take $1.224 trillion at Fed's fixed-rate reverse repo $USD $DXY https://t.co/rH8dZtdbS9
  • Federal Reserve reports reverse repo facility usages of a record $1.224 tln among 77 counterpartiess
  • US Vice President Kamala Harris is expected to meet with UK Prime Minister Boris Johnson on Tuesday
  • Global 10-Year Government Bond Yields: US - 1.1296 (-6.6bps) UK - 0.792 (-5.2) CA - 1.212 (-6.8) GE - 0.322 (-4.0) FR - 0.02 (-3.6) JP - 0.05 (+1.0) AU - 1.250 (-8.0) CN - 2.893 (-0.0)
  • The South African rand has continued its depreciation against the U.S. dollar this week after the Evergrande default probability remains. Get your $USDZAR market update from @WVenketas here:https://t.co/24dVHrkMDG https://t.co/aNNU5qnha6
  • What is more concerning than just US equities down or global equities being down is that 'risk' across the board is under serious pressure. The more intense and persistent this trend, the greater the risk it turns self-sustaining https://t.co/KPblFpeaqf
  • It's rare event where the buy-and-hold, long volatility crowd do a victory lap and say their formal 'I knew it'. The $VXX short-term volatility ETF is up sharply on heavy volume. One of my 'early warning' signals https://t.co/5XqfJJTqR3
  • Coinbase will drop its plans to launch its crypto lending program that was under regulatory scrutiny
Dollar, S&P 500 Rallies Waylaid by Anticipation of Biden Stimulus, Fed Taper

Dollar, S&P 500 Rallies Waylaid by Anticipation of Biden Stimulus, Fed Taper

John Kicklighter, Chief Strategist

S&P 500, Bitcoin, Tesla and Dollar Talking Points:

  • Risk appetite had already lost traction when the week started, but the anticipation of further US political concern and stimulus talk has anchored recovery
  • Both highfliers Bitcoin and Tesla have seen their unbroken enthusiasm finally called into question, but does their retreat signal a broader market fear?
  • Top interest moving forward on my radar is the conversation around stimulus: anticipation for fiscal stimulus from Biden and fear of an eventual Fed taper

Indecision Shows Through in Price Action for the S&P 500 and ‘Risk’ At Large

There has been a lack of clear course on risk trends throughout the week thus far, and price action reflects that uncertainty. Without a clear fundamental theme to whip the market into a clear bullish or bearish trend, it seems that anticipation is taking up the calling for performance. If there is a major event drawing our attention forward, such anticipation shouldn’t come as a surprise in price action. As it happens, we have a scheduled update on US stimulus from President-elect Joe Biden on Thursday in which he is expected to announce a program that will register in the ‘trillions of dollars’. Alone, that could very well feed the ‘buy the rumor’ tendencies of the market, but we also have a specter of the opposite potential for stimulus: the anticipation for the Federal reserve to start tapering its open-ended efforts. So once again, we see a third day of S&P 500 indecision; but the underlying volatility with significant tails should also be taken into account.

Chart of S&P 500 and 50-Day Moving Average with ‘Wicks’ (Daily)

Dollar, S&P 500 Rallies Waylaid by Anticipation of Biden Stimulus, Fed Taper

Chart Created on Tradingview Platform

While indecision is the big picture ‘risk’ setting for global markets, there was also some noteworthy strain on some of the most stretched risk assets. Among the more familiar categories: global indices were struggling, carry trade pulled up from full retreat, crude oil edged a new multi-month high and carry trade was spinning its tires. However, the favored measures that seemed to sit on the cusp of the speculative appetite bubble seemed to suffer the greatest retreat. I would find this in the Nasdaq’s (tech-heavy) slip relative to close cousin Dow Jones Industrial Average (blue-chip). However, for those that have indulged the most popular assets in their charge, Tesla struggled to retake its Friday highs while Bitcoin notched its fourth consecutive daily decline. Should we take this as a sign of an avalanche starting at the top of the speculative mountain?

Poll Asking What Social Traders’ What ‘Risk’ Measure Would Give the Most Accurate Signal

Dollar, S&P 500 Rallies Waylaid by Anticipation of Biden Stimulus, Fed Taper

Poll from Twitter.com, @JohnKicklighter

When the Tumble Starts from the Top

Taking a closer look at Tesla (TSLA), the high-flying automaker was actually up on the day. However, given its performance through the past weeks, that is not a particularly reassuring performance. Monday’s slide was substantial, but it doesn’t exactly knock he stock off course. That said, I still see this stock as a clear signal of the market’s speculative appetites. Fundamentally-speaking, the ‘disruptor’ quality of this company doesn’t exactly level up to its swell to overtake Facebook for its market capitalization ranking. Rational is not characteristic I would freely attribute to these markets, but there are certainly bounds to how extreme we should expect market participants to allow prices to float. In the meantime, at least the misinterpretation of Elon Musk’s suggestion to switch to the Signal messenger app – which the market seemed to mistake as a recommendation for Signal Advance (SIGL) – has at least start to meaningfully unwind.

Chart of Tesla Overlaid with SIGL (Daily)

Dollar, S&P 500 Rallies Waylaid by Anticipation of Biden Stimulus, Fed Taper

Chart Created on Tradingview Platform

In terms of progress in retracement, Bitcoin’s (BTCUSD) slide seems to carry more commitment. Rather than an abrupt collapse which can be treated as a flash rebalance that inspires speculative opportunism, the most recognizable cryptocurrency has dropped four consecutive trading days at a troublingly more consistent pace. There is still a long way to go before we fully retrace the market’s doubling over the past month, but macro traders should take note whether they trade this market or not. While there are many arguments that attempt to label this alternative-to-fiat as a safe haven, its actions are more aligned to speculative appetites. That can make it a useful gauge.

See our history of major financial bubbles to see if what similarities you see to the current Bitcoin climb.

Chart of Bitcoin with 20-DA with 20-Day ATR and Consecutive Candles (Daily)

Dollar, S&P 500 Rallies Waylaid by Anticipation of Biden Stimulus, Fed Taper

Chart Created on Tradingview Platform

The Fundamental Basis for the US Dollar: Haven or Relative Economic/Investor Opportunity?

Speaking of fundamental roles, the US Dollar’s actions seem to defy simple interpretation from previous one-dimensional periods. The three-day charge hit the skids through Tuesday. I wouldn’t consider this a sign of risk trends shifting as the Greenback’s commitment usually comes through when it is playing the role of absolute liquidity haven when it aligns to risk aversion. We certainly did not see that scale of risk aversion in previous days nor did risk appetite gain traction to cut the currency down. Nevertheless, I will keep this role firmly planted in the back of my mind. While USD will not rise and fall with ever risk aversion and risk appetite flip; should conditions truly devolve, this currency will find no rival.

Poll Asking What Social Traders’ Top Hedging Approach is for Current Markets

Dollar, S&P 500 Rallies Waylaid by Anticipation of Biden Stimulus, Fed Taper

Poll from Twitter.com, @JohnKicklighter

Taking a closer look at the intensity of risk trends in the Dollar’s realm, I still believe USDJPY to be a particularly useful barometer – even if we don’t intend to jump into the range. This is a pair of two often-debated ‘safe havens’. Neither really strikes me as a sensitive measure to earn this title, but they do both align to such activity in different conditions. For the Greenback, we have a liquidity haven which tends to perform in the most severe bouts of deleveraging. Alternatively, the Yen is a funding currency that funds ‘carry trades’ seeking higher yields as Japanese investors are pushed abroad to make meaningful return. The interplay between these two can help define what type of risk move we are seeing – whether risk on or risk off. That of course presumes, risk is at play.

Chart of USDJPY with 100-Day Moving Average (Daily)

Dollar, S&P 500 Rallies Waylaid by Anticipation of Biden Stimulus, Fed Taper

Chart Created on Tradingview Platform

The Dollar Technicals and the Dollar Fundamentals

I am a firm believer in collective motivation serving as a drive for effective trends. That does not mean that the catalyst that gets things moving is the lynchpin to continuity as speculative confluence often casts aside rationality – fear rising to panic for example rarely checks in on value – but I typically expect to find some divine organizer. Alternatively, technicals can also carry greater weight when fundamentals are on the backburner. That puts EURUSD in an interesting position. The world’s most liquid currency cross has stalled and bounced at 1.2150 – the midpoint of the 2014-2017 range and the historical range of the pair itself. There is no doubt recognition for this level, but I don’t think it would stand up to any meaningful speculative intent.

Chart of EURUSD with 50-Bar Moving Average (Weekly)

Dollar, S&P 500 Rallies Waylaid by Anticipation of Biden Stimulus, Fed Taper

Chart Created on Tradingview Platform

If I’m looking for a fundamental cue, I suspect our next spark may come in the form of ‘stimulus’. There is a clear timeline for President-Elect Joe Biden to announce his administration’s stimulus program to fill the hole left by the pandemic and expiration of the CARES act last week on Thursday. It is reported that this effort will run into the ‘trillions’ which could also serve as fulfillment – at least in scale – of the long-discussed infrastructure spending program. There is debate as to whether this would be a bullish or bearish development – on the one hand it would encourage US relative growth and on the other it would increase the ‘supply’ of Dollars. Yet, whichever we were to register, the talk of ‘taper tantrum’ from the Fed – whereby the central bank announces a pullback in an open-ended stimulus program that triggers unease among speculators that have grown dependent on the support – is the opposite influence. That said, there is no defined time frame for this matter. That said, these are speculative and forward-looking markets.

Chart of S&P 500 and Fed Balance Sheet in Billions (Weekly)

Dollar, S&P 500 Rallies Waylaid by Anticipation of Biden Stimulus, Fed Taper

Chart Created by John Kicklighter with Data from Bloomberg Terminal and Fed’s Economic Database

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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