- US futures rally for fourth day
- Cyclicals outperform
- Oil price fluctuates
Key Events
Early Tuesday, a selloff in oil ahead of today's ceasefire talks between Russia and Ukraine in Turkey boosted futures on the Dow Jones, S&P 500, NASDAQ 100 and Russell 2000 as well as global stocks.
However, renewed fears of tighter supplies have caused oil prices to rise, at time of publication.
Global Financial Affairs
In Europe, travel and leisure-related shares led the STOXX 600 Index higher, with all sectors in the green. In the UK the FTSE 100 also gained.
Russell 2000 contracts led US futures higher in trading ahead of the open in New York.
This morning in Asia, all regional benchmarks rose, except for China's Shanghai Composite, which fell 0.33%. Japan's Nikkei 225 surged 1.1% after the Bank of Japan maintained stimulus, pushing the yen to a 7-year low.
On Monday, stocks in the US rebounded in the second half of the session, after an early selloff. Mega-caps and technology stocks led the rally, while the slide in Treasuries—as investors sold out of longer-dated bonds—slowed. As traders moved out of bonds, 10-year yields rallied.
The rise in yields of longer-dated bonds was at the expense of shorter-dated debt instruments. The chart below illustrates the recent negative divergence between 3-month and 10-year yields.
A higher payout for longer-dated Treasuries is a sign of economic growth which fits with the increased risk appetite which is evident in today's equity market rally. When the yield on shorter-dated bonds is higher than longer-dated ones the yield curve has inverted. This is considered a sign of an economic recession.
The question now is whether this is a short-term move or does it represent a trend? That, of course, remains to be seen.
The dollar retreated for the first time in six days.
The greenback is trading right at the top of a falling flag, following the upside breakout of an H&S bottom.
Gold slid for the third consecutive day, despite dollar weakness.
If the price of the yellow metal continues its current decline to below $1,900, it will have completed an H&S top, supported by the 50 DMA. Previously, the yellow metal realized the implied target of a massive Symmetrical Triangle, dating back to 2020.
Bitcoin climbed for the eighth day straight. Yesterday, we considered if the current rally in the leading cryptocurrency has legs.
Some readers questioned the point we said was the neckline of the preceding H&S top. Their concerns are valid.
Drawing moving trendlines is more of an art than a precise science. One develops a feel for where the presence of buyers and sellers is more likely as one gains experience with technical charting. Above we present two trendlines, the one discussed in yesterday's post is in black with an alternative version in red.
Perhaps the red trendline, where the neckline is supposed to be, is truer to textbook theory. However, we felt that the two lows on the left shoulder were more meaningful than the extremely long intraday price on the right side of the shoulder.
We implemented our "freestyle" trendline, as it matches up better with the return move's pattern and the 200 Day Moving Average. Sure enough, the price found meaningful resistance by our version of the neckline, having developed a bearish Shooting Star, where today's trading confirms resistance.
Oil slid, but as we write, has recovered slightly, on concerns that, among other things, China's restrictions to combat spiraling cases of COVID-19 will dent demand. However, the ceasefire talks between Russia and Ukraine brightened the oil supply outlook.
The price may be developing a symmetrical triangle, expected to be bullish within the underlying uptrend.
Up Ahead
- ADP nonfarm employment change figures are released on Wednesday.
- On Wednesday, US GDP figures are printed.
- Crude oil inventories are reported on Wednesday.
Market Moves
Stocks
- The STOXX 600 rose 1%
- Futures on the S&P 500 rose 0.2%
- Futures on the NASDAQ 100 rose 0.2%
- Futures on the Dow Jones Industrial Average rose 0.2%
- The MSCI Asia Pacific Index fell 0.5%
- The MSCI Emerging Markets Index was little changed
Currencies
- The Dollar Index fell 0.2%
- The euro rose 0.6% to $1.1041
- The Japanese yen fell 0.3% to 123.53 per dollar
- The offshore yuan was little changed at 6.3836 per dollar
- The British pound rose 0.02% to $1.3087
Bonds
- The yield on 10-year Treasuries advanced three basis points to 2.49%
- Germany's 10-year yield increased to 0.67%
- Britain's 10-year yield rose five basis points to 1.70%
Commodities
- WTI crude fell 0.86 to $104.00
- Brent crude rose 0.8% to $110.41 a barrel
- Spot gold fell 0.4% to $1,914.68 an ounce