Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Week Ahead: Sunday Stimulus Vote Could Boost Equities; Dollar, Gold Rise

Published 12/20/2020, 07:32 AM
Updated 09/02/2020, 02:05 AM
  • December set to be the deadliest month of 2020 as COVID escalates globally
  • Stimulus package may be approved Sunday, potentially boosting Monday's US market open
  • Dollar steadies

All four major US averages—the S&P, Dow, NASDAQ and Russell 2000—notched new records last week, though each closed lower on Friday. Equities on Wall Street dropped during the final day of trade when Congress once again was unable to reach an agreement on fiscal stimulus.

That risk, however, may no longer be in play in the coming week as reports broke late Saturday night that senators had "struck a late-night compromise to clear one of the final hurdles," to a new, $900 billion coronavirus fiscal aid package, and that voting could take place Sunday to finally authorize the stimulus. Should this occur, markets would likely start the week on an up-note, compounded by optimism on the rollout of additional vaccines across the US and the world.

Still, an array of other geopolitical risks could continue to roil markets and drive volatility in the coming week. Among the headwinds: additional US sanctions—announced Friday—against dozens of Chinese tech firms including chipmaker SMIC (HK:0981) and privately-held drone manufacturer SZ DJI Technology China, returning the Sino-US trade war to the forefront; stalled Brexit negotiations ahead of the Sunday deadline and the coronavirus continues to ravage the US and Europe as the global case count has topped 75 million infections worldwide.

Quadruple Witching; Potentially Bearish Technicals

US equities dropped on Friday but Tesla (NASDAQ:TSLA) shares extended a record amid heavy volume ahead of the electric carmaker being added to the S&P 500 on Monday. The broad benchmark ended a three-day advance as it closed out the week.

However, quadruple witching, the quarterly expiration of options and futures on stocks and indices, created a flood of volume that pushed stocks well off their lows. Nonetheless, Friday’s trading still formed a potentially bearish pattern.

SPX Daily

Friday’s price action developed a hanging man, bearish with a confirmation—a close below the hanging man’s real body or closing price. The MACD’s short MA already fell below the long MA and the ROC has been providing a negative divergence. After achieving half the preceding symmetrical triangle’s implied target, it may be time for a pullback.

Tesla surged 6% on Friday, gaining 11.6% over its two-day rally, with nearly 200 million shares trading hands. That's four times the 30-day average for the stock, as funds benchmarked to the S&P 500 adjusted holdings to include the Palo Alto, California-based electric auto manufacturer ahead of the company's inclusion on the SPX. This was the highest volume of trade for the stock since Feb. 4. The stock has skyrocketed this year, vaulting 731% higher as of Friday's close.

As well, some analysts are forecasting additional upside for the stock which, as of Monday, will become the top performing S&P stock by a wide margin. This should add to its already robust momentum.

Technicals concur. The supply-demand balance is pointing higher.

TSLA Daily

The volume on the upside breakout of a pennant pretty much guarantees a heavy rollout of the continuation pattern. This should take the stock to $750.

Quiet Before The Storm?

Economic data was mixed last week, revealing that the recovery is losing some steam amidst rising virus cases and renewed lockdown restrictions. The weakness in retail sales and the recent slowdown in jobs growth as well as the uptick in initial claims, which reached the worst levels since September, weighed on investor sentiment.

While stocks may have recorded new all-time highs last week, their rate of ascent has eased as economic data reflected a slower recovery, as well as the cyclical year-end, holiday market environment.

In truth, with so many moving parts now in play, it's difficult to know whether the US economy will take off, continue sideways for a while, or contract yet again. Over the short-term, monetary and fiscal policy can continue to support the economy, kicking the can down the road. But without growth fueled by real gains, the economy could end up running on funny money and the mammoth debt would eventually have the potential to explode the system.

Yields, including for the 10-year Treasury note, climbed on Friday, for a fourth straight day.

UST 10Y Weekly

Rates bounced off the long-term downtrend, reinforced by the 50-week MA, in place since the November 2018 high, after breaching it two weeks earlier.

The recent, steeper dollar selloff provided traders a buying dip on Friday.

DXY Daily

From a technical perspective, a strengthening dollar would be considered normal market mechanics, as the greenback executes a return-move to the bearish flag, following a H&S continuation pattern. The 100 WMA, after providing resistance to the H&S, forced the 50 DMA lower.

Gold retained almost all its gains on Friday, despite the stronger dollar, probably due to its safe haven status on a day when equities sold-off.

Gold Daily

The precious metal bounced off the bottom of a falling channel and nearly reached its top. At the same time, it completed a small H&S. However, we would feel more comfortable making a bullish call on this after an upside breakout of the channel.

Bitcoin popped on Friday jumping 3.5% to hit yet another record for the soaring cryptocurrency. It was the digital token's eighth advance in a row, for a total 32.6% gains—in, we'll say it again, just eight days.

Oil accelerated on Friday, rising 1.5%, climbing for the fifth straight day for a total of 5.4% over the course of the week. WTI also logged its seventh straight weekly gain, +37.2%.

Oil Daily

Crude almost realized its flag’s implied target, and the RSI neared the 75 over-sold level, the most extended for the commodity since April 2019. The ROC reached the top of its falling channel.

The Week Ahead

All times listed are EST

Sunday

19:30: Australia – Mid-Year Economic and Fiscal Outlook is released.

20:30: China – PBoC Loan Prime Rate: expected to remain steady at 3.85%

Monday

19:30: Australia – Retail Sales: seen to drop to -0.6% from 1.4% previously.

Tuesday

2:00: UK – GDP: forecast to remain flat at 15.5% QoQ and -9.6% YoY.

8:30: US – GDP: predicted to have leaped to 33.1% from -31.4%.

10:00: US – Existing Home Sales: believed to have slipped to 6.70M from 6.85M.

Wednesday

8:30: US – Initial Jobless Claims: to edge higher to 900K from 885K.

8:30: Canada – GDP: expected to fall to 0.2% from 0.8% MoM.

10:00: US – New Home Sales: probably dipped to 990K from 999K.

10:30: US – Crude Oil Inventories: anticipated to jump to -1.937M from -3.135M.

Thursday

8:30: US – Core Durable Goods Orders: seen to decline to 0.6% from 1.3%.

Friday

Australia, Canada, Eurozone, Hong Kong, Mexico, New Zealand, South Africa, UK, US

Christmas Day Holiday

Latest comments

No stimulous. Trump wants things removed from bill. A vote for 2000 does not Mean its approved. Biden will have to pass stimulant . Trump will veto . Congress needs tk take out a bunch of stuff. Market already added tk current prices . Only media keeps the market up. We have no stimulous . Done
Keep printing dollars to buy foreign goods that América can not produce
More quality updates, thanks Pinchas. I believe whether or not the current vaccines will work on the new COVID strain will be important down the road. If the vaccines are not effective, countries will need to push containment harder.
NYSE
You gotta watch small caps here, and note that financials and NYA are at a similar place on a similar chart. Just look how far they are out of the upper BB on the monthly.
Too many legs up! I guess it is not a bull market, it is an octopus market!
A bull with tentacles for horns - like a mythological monster
Stimulus never been at risk; market priced in its adoption many times in advance. Further market development depends mostly on January 5 results of Georgia senate races. Talking about gold, mining stocks are ready to repeat 2009-11 bull run. The main ingredient, zero rate, is firmly in place.
Thanks for your observation, New jazenevd.
Gold will sell
 nicely presented by the way.
oh yes
 Thanks, Arthur.
It is really interesting how stock prices keep climbing despite shakening economy, if it doesnt explode at some point it will be a very case to be analysed, And I eould gladly read and learn about it... ‘cause this increase doesnt make any sense ....
Look, I was bearish throughout the March bounce, which turned out to be one of the strongest bull markets on record. There is still considerably uncertainty, but no body wants to lose out on this crazy rally based on cheap money continuously pumped into the economy, compounded by near-zero rates. I fear that might be a reckoning. I hope there won't be.
dollar destruction
It makes sense, as Pinchas noted in his reply. Zero rate and cheap money. These factors, esp. rate, are still underappreciated in some market sectors.
Let's just continue printing funny money until they become really funny ;-)
or really sad
Stimuls isnt already priced the last 14 headlines? Really?? Always up?
See the comment above you. That's my feelings on the subject. Look, with so many hick ups, once it's signed and delivered, I believe ever-hungry traders will keep bidding it up.
Deae Mr. Pinchas,Thanks for all your time, efforts and continuous support.Appreciate if you could hint at Gold level if Stimulus package is signed today.Be Safe, Take care and have a nice time with your family, friends and loved ones Thanks & Regards,Asad
What about FTSE 100? Any predictions in the wake of new strain of virus and new lockdowns?
The FTSE 100 has been resilient thus far despite all these negative tidings. If anything, the chart shows that it may be getting ready for another leg up.
Evidently, always up is the narrative. No matter what...another leg up. New all timer higher-ers is the story.
 If you're referring to me, then you haven't read my previous posts.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.