The losers are the big winners

The losers are the big winners

8. juni 2020Læsetid: 5 minutter

Friday´s unexpectedly strong job figure in the United States pushed markets up another level and triggered several buy signals. When more and more people how have missed the rally should enter the market again, they are looking for the shares that have performed worst and which can provide a ketchup effect with the leading indices.

On the New York Stock Exchange, this is reflected in the fact that energy companies, finance and industrial companies have performed best, relatively speaking, compared to groceries, health care and IT, which were the winners in the rally from the bottom in March 2020.

In an international comparison, financially strong US and Germany act as drawbacks with their exchanges since they have the most money to invest in new support. But look at the French stock exchange, which is pulling well after the EU has decided on major support measures. France has never been a great friend of budgetary disciplines and with Corona the country is given looser reins, which they will certainly use.

Friday´s job numbers in the US were expected to show a continued decline of approximately 7.7 million jobs, but instead they indicated that the number of jobs increased by 2.5 million. We have a little difficulty digesting this rapid rise. If you read the report it is confirmed that BLS has experienced continued measurement problems. All figures are based on surveys (i.e. not real notifications). In the case of unemployment that came in at 13 percent, BLS write itself that it is not correct. People how were not at work due to Corona were registered as temporarily absent and not unemployed for reasons that BLS does not explain. Unemployment should therefore be adjusted up by 2.5 percent as it does not accurately reflect the questionnaires. But the official figure of 13 percent is still fixed.

If you look at where the jobs were created, you are also confused. Was it really 1.2 million jobs created in the service the same month the US introduced lock-down? Another remarkable figure is that 585.000 government jobs disappeared during the period. The result is at least a V in the graph above. Is this the beginning of the big V that we see in the stock market or is it just at small hook? Will the S&P really be a leader in a gigantic economic recovery? We have a hard time accepting this thesis.

The GDPNow from the Atlanta Fed shows that the US GDP, calculated from 13 subcomponents, rates at minus 50 percent. It´s hard to see any V formation here. But one must also remember that we are in an unknown territory. In principle, all economic models falls into this pandemic, since no one has ever seen the same shock and has been able to take this into the models.

We view the market as still liquidity driven. Above is the Fed’s balance sheet compared to the S&P500 since 2010. The compliance between the support and the S&P500 is high.

The above is the same graph but a bit more zoomed in. The latest upturn is in good agreement with the Fed´s support purchases.

In terms of valuations, it can only be stated that the S&P500 in relation to GDP has never been so highly valued. With an average of around 120 percent of GDP, the S&P500 is now traded at over 150 percent of GDP, before GDP is adjusted down…

But one can not overlook that the market is rising.

The best way to play this market is to let the trend be one´s friend and use superfast indicators. On a daily level, it is EMA9 and even EMA5 that can be used, that is, indicators that take into account the five and nine most recent trading days and which place additional emphasis on the last trading days.

Above a formula. The easiest way is to adjust the graphs for these and insert them as lines, as we have done below.

As shown in the graph below, S&P 500 in the US broke up over resistance at 3 130 during Friday and is trading well above its EMA9:

The index is also trading above its EMA9 in the 1-hour graph:

Thus, the rising trend is strong and the next level on the upside can be found around 3 260.

Tech-heavy Nasdaq closed Friday’s trading above previous top from February 2020. Nasdaq is also trading above EMA9 in the daily graph below. The same applies to the hourly graph.

The Apple share also closed Friday above its previous top from February 2020. Note in MACD that the momentum is positive but declining. EMA9 serves as a first support on the downside followed by MA20:

German DAX broke up over MA200 last week and is getting closer to resistance around 12 940. As seen in the daily graph below, the index is well above EMA9. Momentum is positive and increasing:

Swedish OMXS30 closed Friday’s trading above a resistance around 1 725. The next level on the upside is found around 1 770. The index is trading well above EMA9 under a positive and increasing momentum:

The H&M stock was Friday’s winner in Sweden. It has moved on above Fibonacci 50 and is getting close to Fibonacci 61.8 serving as a first resistance followed by MA200 and the SEK 179-level:

The H&M share is also trading above EMA9 with a positive and increasing momentum.

Another trading opportunity above EMA9 is the EUR/USD. However, the USD gained strength on Friday’s US job figures. In case of further strengthening of the USD against the euro, support can be found between Fibonacci 23.6 and the 1.118-level:

Gold is an asset not trading above EMA9. The gold price also closed on Friday below MA20 and the rising trendline. Fibonacci 23.6 serves as a support. Note the negative divergence with the MACD that may now take out its right. Risk is on the downside. A continued strengthening in the USD also put pressure on the gold price:

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

10-08-2020 07:36:05


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