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IBM Wave Analysis

  • IBM broke long-term resistance level 152.00
  • Likely to rise to 160.00

IBM recently broke through the powerful long-term resistance level 152.00 (which stopped the earlier sharp upward impulse sequence (1) in August).

The breakout of the resistance level 152.00 accelerated the active short-term impulse wave 3 – which belongs to the medium-term impulse sequence (3) from the start of December.

IBM is likely to rise further toward the next round resistance level 160.00 (top of the previous impulse wave (i)).

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JPMorgan Chase Wave Analysis

  • JPMorgan Chase broke daily down channel
  • Likely to rise to 140.65

JPMorgan Chase continues to rise inside the medium-term impulse wave (3) – which started earlier from the combined support zone surrounding the key support level 130.00.

The price previously broke the resistance trendline of the daily down channel from December- which strengthened the bullish pressure on this instrument.

JPMorgan Chase is likely to rise further toward the next resistance level 140.65 (top of the pervious impulse waves (5) and (B) from January).

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Nasdaq correction could knock the index by 12%

By the end of the week, the stock markets returned to a cautious mood, as players’ attention shifted to the problems of the production sector. Asian trading bourses declined for the second day in response to the Hubei Province’s call for companies not to return to work until March 11 and all new reports of the suspension of factories around the world due to lack of components from China.

Preliminary estimates of manufacturing PMI indexes are set to release on Friday, which may bring back the focus on business sentiments. The Japan Manufacturing PMI released this morning caused markets disappointment and made them look cautiously at the European data that will be released later today.

Besides, the stock markets seem vulnerable to corrective pullbacks at current very high levels. The increased caution of investors is easy to understand.

Market prices already reflect monetary stimulus and expectations of declared easing. However, new evidence is emerging almost daily on how the transport blockade in China is affecting businesses around the world. Traditional monetary incentives in the form of rate cuts can hardly be called the cure in this case.

Interest rate cuts have proven to be effective in times of overproduction, and demand shocks, when businesses afraid to spend, assuming a drop in sales. Now the companies are often unable to do so due to logistics breakdown. Under these conditions, the main driver of growth in stock prices may be only buybacks of companies. Earlier this week Apple warned that it would not fit into its range of profit forecasts for the first quarter. It should be expected that many companies in the coming days and weeks will follow its example by revising their estimates.

Worst of all, the fundamental valuations point to a large overbought U.S. stock market based on earnings per share or price-to-sales ratios. By these measures, the market is similar to the situation in the late 1990s. The most dangerous in this case is that after five years of rapid growth stocks were sinking in the next 2-3 years. As a result of this correction, stocks returned closer to multi-year average levels and even below for mentioned multiplicators.

In the shorter-term, we also receive an alarm sign from the technical analysis. The Nasdaq index moved 2.2% away from Thursday’s peak levels, down to 9540. The RSI index on the daily chart declined from the overbought area, signalling the beginning of a correction rollback. At the same time, the divergence of RSI and the price chart for the last month can be seen on the chart, which may be regarded as a harbinger of a long decline. Last time, in May 2019, such divergence ended with a 12% decline in Nasdaq, which took almost a month. A similar situation in terms of signs and depth of deterioration was also observed in March 2018.

Repetition of the correction on the same scale, as we saw in previous years under similar circumstances, will send Nasdaq to the area of 8500 – to the levels of mid-December last year. It is difficult to classify it as a market disaster, but it is unlikely to be welcomed by those who bought stocks near the peak.

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Ford Wave Analysis

  • Ford broke support level 8.00
  • Likely to fall to 7.6

Ford recently broke below the support level 8.00 (which stopped the previous sharp downward impulse wave 1 at the start of February, as can be seen below).

The breakout of the support level 8.00 accelerated the active impulse wave 3 and (3) – both of which belong to the powerful downward impulse wave ③ from December.

Given the clear daily downtrend and the strength of the active impulse wave 3 and (3) – Ford is likely to fall further toward the next support level 7.6 (forecast price for the completion of the active impulse wave (3)).

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Stocks bargain hunting keeps markets afloat after big selloff

Wall Street experienced the strongest collapse in two years on Monday, showing a 3.5% drop in key stock indices. European indices faced a similar failure, returning to levels of early February.

At the beginning of the month, the Chinese authorities managed to calm the markets by abundant liquidity injections and promises of fiscal stimulus. Italy is now choosing a similar tactic, stating that it is considering various incentives, including mortgage holidays in areas particularly affected by the coronavirus. All these measures bring calm back to the markets, but they are hardly a solution to the central problem.

Investors should be prepared for the new sudden index drops if new facts of coronavirus spreading across countries and regions emerge.

If we look at the situation in the short-term, panic sales have stopped. On Tuesday morning, indices are bouncing back from local lows reached the day before. The Nasdaq seemed attractive to buyers after the decline to 9000 and touching the 50-day average. The Dow Jones 30 enjoyed the influx of buyers after dipping to 28,000 at the end of the day on Monday. The Nikkei225 adds 2.8% against Monday’s low, also gaining support from the 200 SMA and proximity to the round level 22000.

However, the significance of these market movements should not be overestimated. The dynamics of the beginning of the day on Tuesday is more like an attempt by investors or algorithmic trading robots to buy at a discount unnecessarily drastically falling indices and stocks. At the same time, the problem of coronavirus proliferation is far from being solved, as well as logistical problems related with suspension of factories and the breakdown of components supply chains. Against the backdrop of such conditions, the rebound may not last long.

 

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Dow set to drop 550 points at the open following Wednesday’s surge

A series of factors have been driving investor sentiment, ranging from developments around the coronavirus outbreak that continued to spread globally to former Vice President Joe Biden’s major wins during Super Tuesday. Earlier in the week, the Federal Reserve also cut its benchmark interest rate unexpectedly by 50 basis points, citing that coronavirus which “poses evolving risks to economic activity.” It was the central bank’s first such emergency cut since the 2008 financial crisis.

The move failed to assuage stock market concerns about the potential economic impact of the coronavirus outbreak while triggering sharp movements in the bond markets, with the yield on the benchmark 10-year Treasury note dropping below 1% for the first time ever. “We’re nowhere near the sort of situation where the Fed should be acting like this,” Richard Harris, chief executive at Port Shelter Investment Management, told CNBC’s “Street Signs Asia” on Thursday morning. “You have to wonder why (the Fed’s) acting like this and you have to wonder especially why they’re using their very, very sparse ammunition up — a 50 basis point cut — very early in a crisis,” Harris said.

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US bear market knocked down world stocks

Major indices have entered the bear market territory, breaking the 11-year bull-cycle. The Dow Jones index closed trading on Wednesday with a 20.2% loss from the peaks of a month ago, which triggered increased turbulence and pressure from sellers. As a result, futures on the Dow Jones lost another 4.3% in the morning, falling to the December 2018 low.

European markets are feeling even worse. EuroStoxx50 fell to the levels of 2013, getting some support from buyers by the beginning of trading in Europe. From the peak levels on February 20, the index has already fallen by 30%.

Trump’s announcement that European tourists, except the UK, are banned from entering the US, reinforces the negative for Europe. Even in these conditions, the closeness of the US and British politicians is evident. However, the rate of spread of disease in Italy remains frighteningly high, despite the quarantine.

The decline of markets demonstrates that investors consider the measures, announced by governments and central banks, to be insufficient. Almost daily, we hear about new liquidity support measures and monetary policy easing. However, the effect of these measures in the markets lasts for minutes.

The Fed’s emergency rates cut last Tuesday failed to inspire optimism in buyers. The emergency measures from the Bank of England yesterday also did not bring buyers back to the British markets.

It is possible that the speed, at which the markets are absorbing the stimulus, only increases the anxiety of investors in the following days.

Today it is the turn of the ECB to pull out its “monetary bazooka”. Now it seems that Lagarde doesn’t have time for delays with the massive support measures. Eurozone countries have the highest number of virus-affected after China. In Italy alone, the number of infected rose by 2,000 per day, despite the country-wide quarantine.

The FX market shows that it does not expect a sharp decline in rates from the ECB, which leads to the strengthening of the euro against its main competitors. Eventually, a strong euro rate would be a disservice for economic recovery.

Thus, very active steps are required from the ECB to support stock markets and contain the strengthening of the euro. If the European Central Bank can be bold enough in its support measures, it could put pressure on the single currency but also ease some sell-off in European markets.

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Markets after Armageddon: Dead cat bounce or green shoots?

Futures on the Dow Jones, S&P500 added about 5% since the beginning of the day in response to unprecedented measures announced by the Fed. The American central bank announced a $500 billion liquidity injection and promised to add another $1 trillion. Central banks in Malaysia, Indonesia, Japan, Korea, and many others announced their support programs in addition to the measures taken earlier this week by the ECB and Bank of England.

Monetary measures are not helping much in the fight against viruses. They aimed to mitigate the negative impact on the economy caused by market panic and widespread sell-offs. The most frightening thing about yesterday’s decline was that all assets were falling.

Previously, the decline in stocks had fuelled the demand for gold and bonds, but on this sell-off, they were also in red. It is no exaggeration to say that yesterday was the day when cash was the king.

After the sharpest decline in its history the previous day, European markets are adding 1.5-3.0% at the opening of trading. Investors are now trying to figure out if these are the first green shoots in the markets after Armageddon or a dead cat bounce? As always in such cases, it will take a certain degree of luck to guess the right answer.

Some signs suggest cautious optimism. Gold has returned to growth, which is a signal that investors are now looking at gold as an insurance against inflation that central bank stimulus measures can reinforce. Safe-haven currencies – the yen, the franc – are retreating from previously achieved extremes. This may be a sign that there is enough liquidity in the markets, and now slowly the focus is shifting the impact on the economy and licking the wounds of investors after the grand market movements the day before.

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Coronavirus impact: markets in Europe increase whilst US still pressured

Germany is also expected to approve today its 10% of GDP package to counteract the infection and its economic consequences.

The Japanese authorities seem to have found a non-monetary way to support the local stock market. The news that the Olympic Games will be postponed but not cancelled entirely caused the Nikkei 225 rally by 12.5% against the lows on the opening of the day. Such dynamics have somewhat reduced the heat in the indices of the Asian region.

Asia is relatively more successful in fighting the spread of disease, which makes the indices of this region perform better than European and American counterparts. China, South Korea and Japan in containing the spread of the disease is much better than that of Europe. Populations in these countries have previously suffered from a range of infectious diseases, and now they have a more sophisticated arsenal of measures from personal hygiene and social distance to the government’s response.

Iran is also showing some progress, with the number of new cases daily standing at around 1,000. These are high levels, but at least they are stable.

Weekend data from Europe evoke mixed feelings. Data from the Nordic countries show an increase in the rate of morbidity. It is positive that in the main sites of infection (Italy, Spain, Germany) we are witnessing some decline in the number of new cases. If this trend is confirmed, it will be possible to hope that from this point the situation will stop worsening, the economic quarantine won’t be tightened further, and the fire in the money markets will be taken under control.

Taking China as a starting point, we can hope that markets will try to find the bottom near existing levels, and at least reduce the range of intraday fluctuations.

The US data, however, makes us look to the future with some fear feeling. On March 22, the number of newly identified cases jumped to 9339, almost twice as high as levels in the previous two days. There is no way to stop the virus from spreading at the moment.

Unfortunately, neither markets nor economies should expect a V-shaped recovery yet.

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Markets are trying to buy the dips of quarantine

Sales on global stock markets were replaced by purchases on the back of extensive liquidity support measures and asset purchases on balance sheets, launched by major central banks. On top of this, governments are increasing measures to support small businesses and large companies. These decisions lead to an increase in demand for the purchase of shares of strong companies, which, according to market participants, were undeservedly sold out during the market crash earlier this month.

The announcement of new liquidity support measures by the Fed and the impressive (almost 20% of GDP) stimulus package in Germany have renewed the interest of markets for purchases. Futures on US and European stock indices have been rising more than 4% today.

At the same time, the markets are moving in contrast to the economic news, which is showing a decline in business activity on PMI indices. These indices have become a kind of universal measure in recent months, as the same methodology is used for different countries, with most of them publishing in the course of the day.

Already released data from Japan and France showed a sharper than expected decline in activity in the service sector. In France, the PMI for the services sector collapsed by 29, the lowest level in the history of this study with a large margin. Business activity in the country collapsed at its highest rate in 22 years of research, indirectly indicating a more than 3% decline in the coming quarters.

Germany’s composite index was also weaker than expected. In essence, the service sector index declined to 34.5 vs 43 expected, the composite index fell to 37.2 from 50.7 a month earlier, vs 41.5 expected.

Indicators for Italy have not been published, but they would have come out even worse than these.

A month earlier in China, we also witnessed higher economists’ expectations against real statistics. Such dispersion once again shows a substantial undervaluation of quarantine impact on the economy.

The markets are reacting as if the data is the matter of the past. And the best strategy, for now, is to try to buy at the peak of fears. But this can be a dangerous mistake.

Quarantine measures have increased dramatically in recent weeks, but they were not enough to contain the increasing number of new cases in Germany, Spain, France. Even more so in the United States. Over the past 24 hours, the number of new cases there grew by more than 10K, accounting for more than a quarter of all new cases. In other words, neither the pandemic situation, nor economy has reached a turning point.

With such background, the final business activity data in March and statistics in April may turn out to be even worse, risking turning the health care crisis into an economic one. The proactive steps of the Fed, ECB and many other central banks has so far helped to offset the risks of a full-fledged financial crisis. But this means that markets have passed the peak of volatility, but not the lowest point. After a short bounce, stocks and commodity assets may turn back to decline, without a real recovery in demand.

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This is a rebound, not growth: the worst is yet to come

Central banks are flooding markets with liquidity by announcing aggressive asset purchase measures on their balance sheets. The Fed is especially successful in the expansion of its balance sheet. It will receive 454 billion from the government stimulus package, which can turn it into trillions of new loans issued. Similar stories can be told about China and Europe.

Covering short positions further enhances the market rebound. Futures on the S&P 500 at the beginning of the day were 21% above the lows of the week. Some investors define the bull market as a 20% increase from the lows.

However, a more cautious valuation method requires not only that the indices increase from lows, but also signs of economic stabilization. There are still certain difficulties with this. Published data on the number of new jobless claims in the United States came out at 3.28 mln. (more than three times worse than average expectations). And that was the reaction of the labour market for the week up to March 21, for which the number of new cases increased by 21.4k. But since then there has been a dramatic deterioration: only yesterday the increase in the number of cases in the U.S. exceeded 17k.

By this indicator, it is difficult to see signs of stabilization or even improvement. Europe and most of Asia can also hardly boast that they have taken control of the situation. This promises to result in more harsh quarantine measure in the coming days and weeks.

The economy has clearly not yet reached its lowest point. Statistical reports are even further from that point. At the same time, the incentives promised by governments are a measure of long-term consequence control. Losing their jobs or facing (almost) a complete drop in sales, consumers and businesses will show a very limited demand in the coming months.

The flooding of markets with money from central banks has satisfied the demand for cash, primarily dollars, but until we see signs of recovery in consumer demand and business activity, it is difficult to expect markets to recover demand for stocks and commodities.

The FxPro Analyst Team

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Trump offers hope for oil

 

Brent fell to $29 per barrel amid market doubts about a sharp decline in production. We remind you that on Thursday the US President tweeted that he hopes for the cut of Saudi Arabia and Russia’s oil production by “10 mln barrels” and even more.

The initial reaction of the market was on the assumption that this would be a decline of 10 mln barrels per day – a widely used unit of measurement, and Trump’s omit. Estimates by market observers indicate a 17-25 million barrels per day drop in oil consumption, and final filling of all suitable storage facilities, including tankers, may occur in the coming weeks. Against the backdrop of such a collapse in consumption, the cuts announced by the US President look quite real. But there are a few important points.

Less than a month ago, Russia refused OPEC’s proposal to cut production by 1.5 million barrels per day jointly. The Russian side argued that this did not make sense, as rising prices would allow the US to slash the market share of OPEC+ countries.

In response, Saudi Arabia announced that it would aggressively expand its production to capacity while reducing prices. In late March, Saudi Arabia refused to participate in an extraordinary OPEC meeting, exacerbating the decline of oil prices.

Russia and Saudi Arabia blamed each other for the oil war. However, the first victim was the American company Whiting Petroleum that declared bankruptcy the day before.

If oil prices remain low, it promises to be just a canary in the coalmine for bankruptcies of US oil companies. They have a high leverage debt burden to banks, which in turn risks shaking the US financial system. Problems for banks risks turning the economic crisis into a financial one with very long-term consequences.

Yesterday evening Saudi Arabia announced its intention to convene an extraordinary OPEC meeting. Almost certainly, Trump’s “expectations and hopes” will be only partially realized. However, if it succeeds in aligning oil production with real consumption, it will be a good sign for the markets. The volatility of oil prices will take second place, reducing the tension in the financial markets.

Despite the corrective rollback, Brent trades 16% above Wednesday’s lows. The oil growth the day before brought stock indices back to growth, allowing investors to forget about the sharp deterioration of the US labour market.

Now it seems that stabilization and some oil bounce may well be the light at the end of the tunnel that financial markets need now. And with a stable financial system, economic recovery will go much faster.

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