News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Bearish
Oil - US Crude
Mixed
Wall Street
Mixed
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bearish
USD/JPY
Bullish
More View more
Real Time News
  • GBP turbulence persists as investors eye the next round of EU-UK Brexit negotiations. Cautious optimism signals a deal is near. Get your #currencies update from @JMcQueenFX here: https://t.co/WjU4oYpmf7 https://t.co/VcNnCjm0B2
  • An economic calendar is a resource that allows traders to learn about important economic information scheduled to be released. Stay up to date on the most important global economic data here: https://t.co/JdvW6HNuqV https://t.co/AiLoS7DrEQ
  • Many people are attracted to forex trading due to the amount of leverage that brokers provide. Leverage allows traders to gain more exposure in financial markets than what they are required to pay for. Learn about FX leverage here: https://t.co/3Wked6GBOp https://t.co/HicBmGrokK
  • There is a great debate about which type of analysis is better for a trader. Is it better to be a fundamental trader or a technical trader? Find out here:https://t.co/7kPzAoNoLG https://t.co/5lbyBJeeA7
  • Entry orders are a valuable tool in forex trading. Traders can strategize to come up with a great trading plan, but if they can’t execute that plan effectively, all their hard work might as well be thrown out. Learn how to place entry orders here: https://t.co/lAFyv1gM0P https://t.co/ubLimoYAcr
  • What is the outlook for financial markets ahead of the first presidential debate and how are Democratic nominee Joe Biden and President Donald Trump doing in the polls? Find out from @ZabelinDimitri here:https://t.co/QQwAZTxZFg https://t.co/4cRhRCiv3C
  • The US Dollar could gain as it forms bullish technical formations against the Singapore Dollar and Malaysian Ringgit. USD/PHP may have bottomed, will USD/IDR rise next? Find out from @ddubrovskyFX here:https://t.co/3UIKmbLIvD https://t.co/PY2YyH4vkQ
  • The Indian Rupee may be at risk to the US Dollar as USD/INR attempts to refocus to the upside. This is as the Nifty 50, India’s benchmark stock index, could fall further. Get your $USDINR market update from @ddubrovskyFX here:https://t.co/3wsYlSxd26 https://t.co/z2qB9p8IgX
  • A proxy of #EmergingMarket capital flows hit its lowest since July, falling with the #SP500 after some divergence This is as #USD gained against its developing FX counterparts, highlighting potential risk of a spillover outwards Stay tuned for next week's #ASEAN fundy outlook! https://t.co/kAvpnb0EXO
  • 4 consecutive down weeks for the #SP500, last matched over a year ago #Fed balance sheet continues to gain very cautiously, now at its highest since the middle of June. Still, at slower pace than last week Focus shifts to US fiscal stimulus next week in the House of Reps https://t.co/f8zpSILm86
US Equities Dive - Is This the Big One?

US Equities Dive - Is This the Big One?

2018-10-11 02:30:00
John Kicklighter, Chief Strategist
Share:

Talking Points:

  • The Dow and the S&P 500 suffered their worst performance since February, the Nasdaq 100 since 2011, FAANG since I have data
  • A tip into bear market or financial crisis is a function of both breadth and intensity in speculative unwind
  • Ahead, look for speculative momentum in subsequent sessions and monitor closely benchmarks like the Dollar, Treasuries and Gold

See how retail traders are positioning in the FX majors, indices, gold and oil intraday using the DailyFX speculative positioning data on the sentiment page.

Fear Raises Its Ugly Head in US Equities

There is little dispute that fear found its way into the US equity market this past session. Following 74 consecutive trading days avoiding a one-percent-or-greater single session loss, the S&P 500 delivered a steep 3.3 percent tumble Wednesday. This painful performance was similar to the 3.2 percent drop from the blue-chip Dow drop both in term of scale and historical relevance. The day's loss was the largest since February 8 during the height of the most intense financial flush in years. Just as these US benchmarks were presented a significantly more intense risk aversion than global counterparts, the Nasdaq 100 suffered an even more pained 4.4 percent plunge on the day. That is the worst single-day loss for the tech-concentrated index since early 2009 - when we were still in the undertow of the Great Financial Crisis (GFC). In this contrast, we find the commensurate retreat to the preceding speculative build up. If we take it a step further, the FAANG aggregate (Facebook, Amazon, Apple, Netflix, Google) experienced a collective loss on the day that was greater than 6 percent. That is the most severe retreat I have on data going back to early 2014. Not only was this the epitome of intensity, it was explicitly concentrated on risk trends. However, the breadth of the reversal has yet to signal the escalation that could readily be labeled a self-sustaining vicious cycle. Though that may come next.

Market Activity and Sentiment vs. S&P 500 Chart

US Equities Dive - Is This the Big One?

FAANG Chart (Daily)

US Equities Dive - Is This the Big One?

Scope is Just as Important to Establishing True Risk Aversion

An intensity in risk aversion is one of the key ingredients for securing a lasting deleverage in speculative markets. The other critical contribution to this equation is 'breadth'. Intense moves in specific assets can certainly signal the establishment of a lasting but isolated trend. Yet, how often do we come across a full-fledged drive in a specific asset that breaks from a committed congestion or contradictory trend from the rest of the financial system? Such occurrences are rare. More often, we find trends for target assets form within the current of a systemic move for the financial system. The participation in the move is deeper and frequently more elemental. A highly-specific shortcoming for an asset - like disappointing earnings, with the US third quarter season beginning Friday - can prompt a sharp and intense response from market participants, but the change in value is quickly discounted more often than not. That is not the case when the motivation is a market-wide change in sentiment. Every trader, fund, bank and policy setter has a tipping point between risk and reward. When the scales tilt across the board, a virtual migration can begin and not play through for an exceptionally long time and after a particularly deep scouring of capital market pricing. Evaluating the scope of risk aversion outside of US equities this past session, we have did see the usual suspects snap to attention. European equities were under pressure, but peak intensity of the selling pressure arose in the New York afternoon hours when that region was offline. Emerging markets and high yield took a serious hit, but the intensity of their retreat was significantly more restrained. The FX carry trade and typical carry currency benchmarks (Australian and New Zealand Dollars) were barely moved. What's most interest is the fact that many of the top-billed safe havens during bouts of true fear (Dollar, Treasuries and Gold) were little changed.

DJIA vs. S&P 500 vs. NAS 100 Chart (Daily)

US Equities Dive - Is This the Big One?

Market Performance Chart

US Equities Dive - Is This the Big One?

What to Watch for Ahead

As we keep tabs on the health of market-wide sentiment - both to control our risk and hopefully evaluate potential - it is crucial to track the combination of the intensity and breadth of the theme. Big picture change in trends more often develop over time rather than flipping from enthusiasm to panic in the span of a single day. That said, there has been evidence of a pendulum swing in the opposite direction for some months with a host of assets (in juxtaposition US equity indices) steadily retreating from their respective highs. Further, the wide volatility charge as recent as February signals that the engine has already attempted to turn over. We could certainly see another break in the momentum following Wednesday's swoon, but consistent would be more convincing. Follow through from the Asia and European markets to reprice to US indices would be bare minimum evidence. Carrying through the selling into subsequent sessions beyond the first way (ie through Thursday and perhaps Friday New York trade) would solidify consistency and speak to speculative momentum. As for breadth, we should see most of those assets with a traditional 'risk' designation conform to the selling pressure. That includes wayward or tempered players like the Australian and New Zealand Dollars, the Yen crosses and commodities. Perhaps more meaningful would be the alignment of safe havens to their traditional roles. Treasuries have been caught up in Fed rate hikes and the QE wind down lately. The US Dollar is acting more like a carry currency that is under pressure of late. And gold has seen little of its traditional flight-to-quality bid - a role that will be particular important when fear does kick in as it will further expose the dependency the financial system has placed upon central banks' shoulders even though they have essentially run out of resources to fight any future fires. We assess whether the markets are at the cusp of a speculative turn and what to watch for in such an event in today's Quick Take video

Risk Severity Curve Chart

US Equities Dive - Is This the Big One?

Written by John Kicklighter, Chief Currency Strategist for DailyFX.com

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

DISCLOSURES