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Global De-Risking Will Send Stocks Even Lower

By Michael KramerStock MarketsOct 04, 2020 01:47AM ET
www.investing.com/analysis/global-derisking-will-send-stocks-even-lower-200539834
Global De-Risking Will Send Stocks Even Lower
By Michael Kramer   |  Oct 04, 2020 01:47AM ET
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Stocks globally continue to struggle, and the struggles have been ongoing. It marks a turn in market sentiment, which is hard to ignore. Markets tend to move a group, with the ebbs and flow moving from one trading to session to the opening of the next session. Each of the major markets each seems to have a bit of there own tale to tell, but indicate the same sentiment, which appears to be a move to risk-off.

S&P 500 (SPY)

The S&P 500 tends to be the market that most global markets follow, and the weakness since the beginning of September is hard to miss, down over 7%. It is a significant shift in momentum since August when the markets seemingly only went up. But the significant change came when the S&P 500 broke its major uptrend broke, along with a substantial shift in the direction of the relative strength index.

With momentum in the index broken, it suggests the S&P 500 may have further to drop. An open gap around 2,860, is likely to be the target.

SPX Daily Chart
SPX Daily Chart

Germany (EWG)

We can see the same type of price action that has taken place in Germany, with the DAX rolling over around the middle of September. That index is down about 5% since the middle of September. But more importantly, it has been losing momentum with an RSI trending and diverging from the DAX price action since the beginning of June.

DAX Index Daily Chart
DAX Index Daily Chart

FTSE 100 (EWU)

We have seen a similar type of weakness in the UK FTSE, which has been trending lower since peaking on June 8. Again, we have seen the same measure of momentum on the RSI, with a continued trend lower.

FTSE 100 Daily Chart
FTSE 100 Daily Chart

Japan (EWJ)

Asian markets have faired better than those of Europe, and perhaps it is due to the higher growth profiles of their economies and the nature of products they produce. Japan has been one of the few markets to suffer recently. However, the Nikkei shows some recent signs of weakness, as it tests its 50-day moving average and has recently fallen below a trend line that has been in place since the beginning of August.

Nikkei Index Daily Chart
Nikkei Index Daily Chart

Oil (USO)

Oil prices have come under pressure, falling by to around $37, dropping nearly 16% since August 26.

Cfds On WTI Crude Oil - Daily Chart
Cfds On WTI Crude Oil - Daily Chart

Lumber

Meanwhile, lumber prices have sharply in recent weeks as well.

Lumber Futures Daily Chart
Lumber Futures Daily Chart

Silver (SLV)

Meanwhile, silver prices have also fallen sharply in recent weeks.

Cfds On Silver Daily Chart
Cfds On Silver Daily Chart

The health of the market at this point seems to appear to directionally be trending lower. The movement around the globe seems to be suggesting a de-risking event taking place. While the drops at this point have been mild to modest, we need to make sure these markets do not begin to suggest a steep decline is coming.

The NASDAQ 100 Analogy continues…

CFDs On WTI Crude Oil Chart
CFDs On WTI Crude Oil Chart

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Global De-Risking Will Send Stocks Even Lower
 

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Global De-Risking Will Send Stocks Even Lower

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Comments (4)
jonathan seagull
jonathan seagull Oct 04, 2020 7:25PM ET
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The theorem is that stock chart is a random walk AND continuous function. So, even in the worst macro, it ALWAYS fluctuate up and down, and so there are always profit opportunities like Maxwell’s demon.
Charles Bates
Charles Bates Oct 04, 2020 4:35PM ET
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Do you not proofread your posts? I can't make out half of what you are saying
Gregorio Castro
Gregorio Castro Oct 04, 2020 10:15AM ET
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thanks
Steve Herzog
Steve Herzog Oct 04, 2020 10:07AM ET
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Good stuff, thanks Michael.
 
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