We see no V

We see no V

5. maj 2020Læsetid: 7 minutter

There are many who speak about a V-shaped recovery for the financial markets and the overall economy. Until now these persons have got water on their mill when the stock market has rebounded. Some stocks are even back at the all-time-highs and over, such as Netflix and Amazon.

Amazon and Netflix represent the part of the IT sector that can benefit from this in the form of increasing shopping online and more hours spent in front of the TV-screen.

The Facebook share has reclaimed EMA9, MA20 and MA50 but is trading at a breaking point –close to a strong resistance made up by Fib 61.8, MA200 and MA100. In case of a break to the upside, the next level can be found around 202 USD:

Bull & Bear-certifikater

 Symbol ISINIndeksreferenceinstrumentFaktorTypeVal.KøbSælg 
BULL AAPL X10 VNT3
DE000VE4KKK7 Apple Inc. 10,00 Long DKK 0,222 0,228
BULL AAPL X10 VNT4
DE000VE53624 Apple Inc. 10,00 Long DKK 0,042 0,046
BULL AAPL X10 VNT2
DE000VF8D9Y9 Apple Inc. 10,00 Long DKK 0,444 0,454
BULL AAPL X10 VNT6
DE000VP2SBE3 Apple Inc. 10,00 Long DKK 43,61 44,59
BULL AAPL X10 VNT7
DE000VP343E3 Apple Inc. 10,00 Long DKK 34,89 35,68
BULL AAPL X10 VNT9
DE000VP485T0 Apple Inc. 10,00 Long DKK 3,49 3,57
BULL AAPL X10 VNT8
DE000VP4VGN3 Apple Inc. 10,00 Long DKK 17,45 17,85
BULL AAPL X10 VNT10
DE000VP69NS9 Apple Inc. 10,00 Long DKK 1,74 1,78
BULL WTI X10 VNT8
DE000VP29RK1 WTI Light Sweet Crude Oil Future Dec 2020 10,00 Long DKK 11,00 11,16
BULL WTI X10 VNT9
DE000VP3A688 WTI Light Sweet Crude Oil Future Dec 2020 10,00 Long DKK 8,80 8,93
BULL WTI X10 VNT10
DE000VP3L891 WTI Light Sweet Crude Oil Future Dec 2020 10,00 Long DKK 0,88 0,894
BULL WTI X10 VNT11
DE000VP3TYV5 WTI Light Sweet Crude Oil Future Dec 2020 10,00 Long DKK 4,39 4,46
BULL WTI X10 VNT12
DE000VP8PGH8 WTI Light Sweet Crude Oil Future Dec 2020 10,00 Long DKK 22,01 22,32
BULL WTI X10 VNT13
DE000VP9PWE0 WTI Light Sweet Crude Oil Future Dec 2020 10,00 Long DKK - -
BULL OLIE X10 VNT9
DE000VP10DA2 Brent Crude Oil Future Jan 2021 10,00 Long DKK 0,001 -
BULL OLIE X10 VNT8
DE000VP1RE94 Brent Crude Oil Future Jan 2021 10,00 Long DKK 0,001 -
BULL OLIE X10 VNT11
DE000VP2QPN8 Brent Crude Oil Future Jan 2021 10,00 Long DKK 0,001 -
BULL OLIE X10 VNT12
DE000VP2SA70 Brent Crude Oil Future Jan 2021 10,00 Long DKK 0,006 -
BULL OLIE X10 VNT13
DE000VP3A662 Brent Crude Oil Future Jan 2021 10,00 Long DKK 19,89 20,37
BULL OLIE X10 VNT14
DE000VP3L883 Brent Crude Oil Future Jan 2021 10,00 Long DKK 7,95 8,14

The Netflix share has lost its momentum after the sharp rise. Note that it is still riding on EMA9, so a simple strategy is to hold on to the share but use a break of EMA9 and Fib 23.6 as a stop-loss. Note that the stock often tests down during EMA9, so it is the day closing that counts.

But again, to the question; V is the classic sign for Victory.

We do not see an impetus for victory in this market, except in small pockets as suppliers to the healthcare industry such as Essity and Elekta out of Swedish companies.

It is possible that the Swedish open society creates an illusion of normality that we do not see in the reporting from the United States. Above are the weekly figures for the unemployed. To the right is the current spike. To the left is the gray field where the most recent recession was noted in 2008-2009. Note that the number of new unemployed persons is barely visible on this scale, as they are disturbed and deviate so sharply from the latest weekly figures.

But above we have zoomed in in a different way. Now the drama can be seen from both the crash in 2000 as well as the crash in 2008-2009. Note that the number of unemployed exploded after the recession had already hit.

 

A slightly more complicated graph above show new unemployed in red and GDP in blue. Again, note that GDP falls first, then the number of unemployed increases. Only when GDP has turned upside down does the number of new unemployed decrease.

None of us has seen this development before, with the number of new unemployed exploding in a very short time. If you go down to US state level, Hawaii is at the top now with an unemployment rate of 25 percent. These are figures that are almost unthinkable. The explanation, of course, is that Hawaii is incredible dependent on the tourism industry. Almost all new jobs in recent decades have been created in the service industry. It will probably take years before it´s back to pre-corona levels.

A weak service industry turns into a weak consumption. Ask your personal PT if he plans to buy a new car now? Do you even afford to have a PT now or do you think carefully that it is best to cut down on all expenses? You probably think of the latter. It is precisely this flock behavior that central banks, politicians and private analysts at the banks want to counteract by drawing the narrative of a V-shaped recovery. What increases optimism is, of course, that the death toll for the Corona virus has started to decline in Italy as well and that more countries are talking about opening their economies again.

But just because the virus (hopefully) blows by, it does not mean that everything returns to normal.

We use a mix of macro and fundamental analysis combined with technical analysis to capture all market trends. That is perhaps why we are not embracing this optimism. As technical analysts, we want to see a clear bottom in the economy before we call a hallelujah. We like to miss some upside just to keep the risk down. If you want to play on the central bank´s incentives, you can also do this. We have identified countless times Apple and other FAANG companies as interesting just like gold and gold companies. However, with bottom fishing in bombed out industries you should be much more cautious. The long-term saver should instead look to investment companies as Investor.

The graph above shows the close relationship between jobs in the US and S&P 500 index. Had the Fed and other central banks not bought support in the market, the S&P500 would have declined significantly more. Since the job figure in the US is released on the first Friday after the end of each month, the unemployment rate as of April 30 will not be released until May 8.

Of course, speculations are in full swing and there is talk of unemployment rising from 4.4 percent I March to 16 percent. Some even talk of an unemployment of over 20 percent. Consensus expectations according to a Reuters poll are 14 percent.

The purchasing power that thus disappears can hardly be offset by the Fed support purchase. There will be more support and it is certainly in President Trump´s interest to do so ahead of this fall´s presidential election.

Over the past week, 75 US companies have reported their Q1 2020 figures. The proportion that delivered profits over forecasts has declined from 68 to 60 percent, which is a comparatively low figure for the S&P500. Among the sectors that have more than two reporting companies, Healthcare is best at 90 percent of earnings on the north side of the expectation line. Cyclical consumer goods are second best with 79 percent. Third best is Technology with 75 percent of results better than forecast.

In aggregate, the analysts have revised down the profit outlook for these 122 S&P companies for the upcoming Q2 2020 by an average of 37 percent(!)

Purely looking at the graphs, short term momentum is still rising on the stock market in the US. This is illustrated by a rising EMA9 and MA20 in the graph for S&P 500 below. The index did also manage to close Friday´s trading on plus, above falling MA50. The next level to be broken on the upside is 2 880 followed by Fib 61.8 meeting up at 2 933:

On the downside, Fib 50 at 2 791 serves as a first level of support followed by the 2738 level and rising MA20.

Nasdaq bounced back up from Fib 61.8 and MA100 during Friday´s trading. Resistance can be found between 8 885 and 8 950. In case of a break above this interval, the next level can be found around 9 160:

The index has a strong support around 8 610 where Fib 61.8, MA100 and EMA9 converge. The sharp rising trendline is a second support.

In Sweden, OMXS30 is still consolidating in a bearish rising wedge. The index closed Friday´s trading slightly below EMA9 at support in form of Fib 38.4. Given the strong last trading hours in the US, it’s not unlikely that OMXS30 will gain some today to catch up, at least initially. Also note how MACD has generated a buy-signal:

Resistance can be found around 1 547 followed by a falling MA50 serving as second level of resistance.

German DAX index closed Friday´s trading below EMA9 and Fib 38.2. MA20 around 10 172 makes up the first level of support on the downside. Note how the upwards movement of EMA9 and MA20 has started to fade indicating that DAX is losing its momentum:

Just like OMXS30, it would not be a surprise if the DAX index initially gained some ground during today´s trading. But in the 1-hour graph below, one can see how the falling trendline serves as first level of resistance. The next level on the upside is the falling MA50 around 10 873 in the daily graph.

Brent oil is struggling but bounced of its week lows during the second half of previous week. Somewhat encouraging is the positive divergence between the oil price and MACD:

However, the upside is limited. A break above the first resistance gives little upside to the next level made up by a falling EMA9 around 24 USD per barrel.

The EUR/USD is pushed downwards by a falling EMA9 and MA20. The first level of support can be found around 1,077:

Gold is making a second attempt to reach the 1 770-level from late 2012. A stronger USD is not giving a helping hand. Support on the downside is found between a rising EMA9 around 1 706 and 1 703 USD per troy ounce. Next is the 1 685-level:

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.


29-10-2020 01:14:04

 

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