Three well-known concerns weigh on the stock markets

Three well-known concerns weigh on the stock markets

06 December 2021 from CarlsquareReading time: 8 minutes

In this weekly trading note from Carlsquare, we elaborate on the following topics, indices, and stocks:

  1. Three well-known concerns weigh on the stock markets
  2. VIX shows considerable uncertainty in the stock market
  3. Shanghai stock market rises, contrary to most other
  4. Buying S&P500 at MA20 in the weekly graph is not for the faint-hearted
  5. Scary times in Tesla
  6. Nasdaq with a broken neckline
  7. VIX and Skew imply investors still fear the downside
  8. Perhaps EUR/USD has bottomed out
  9. Brent looks pretty uncertain about what's next
  10. Buy OMXS30 and buy the falling trend
  11. In a better market,Volvo may be able to close the gap
  12. DAX also have a gap that can be closed…in better markets

The New York Stock Exchange has three worrying clouds over it; omicron, inflation, and the Fed's tapering. We have written about all three before. Expectations ahead of the US Non-Farm Payrolls report on Friday, December 3, were on 550,000 new jobs in November. Further, this would not affect the Fed's tapering of economic support.

The 210,000 jobs outcome did not support increasing interest rates as we advance, nor an accelerated tapering. But the main drivers of inflation are producer and commodity prices, not wages. The inflationary turmoil has already been dampened somewhat by lower oil prices.

There were new jobs in nine sectors in the United States, with Professional Services being the strongest. The Government lost 25,000 jobs in November. At the same time, the US Bureau of Labor Statistics increased the number of jobs created in September and October retrospectively. Furthermore, 1.1 million more Americans had gone into employment in the US as of November 30, 2021, corresponding to an expansion of the total labor force by 0.7%. The unemployment rate is now down to 4.2% in the US. All in all, a mixed impression.  

As the graph shows, the recovery in employment has lagged the stock market performance since the spring of 2020. But as we know, the same is true for corporate profits. Stock markets have gone up ahead. Let us assume that the recovery in the number of new jobs continues at the same pace as it did from August to November this year. Then it will take until January 31, 2023, before there are as many jobs in the US as there were on December 31, 2019.

S&P500 Index versus US Non-Farm Pay-rolls from December 3, 2016, to December 3, 2021

Source: Fred Economic Data (St Louis Fed).

VIX shows considerable uncertainty in the stock market

The VIX index has risen to ever-higher levels, demonstrating that the stock market is not feeling well. Admittedly, today's levels at around 30 are modest compared to about 80 at the time of the Covid breakout in Q1 2020. However, we must go back almost a year to January 2021 to find levels nearly as high as today.

VIX Index graph from April 29 to December 3, 2021

Source: Refinitiv Eikon

Shanghai stock market rises, contrary to most other

The price pattern for global stock markets on a weekly and monthly basis does not look good. The Nasdaq 100 lost 2.6 percent last week. Now only the FTSE (London Stock Exchange) to some extent and especially the Shanghai Stock Exchange are bucking the general stock market trend, which is down.

Stock Market Price development for ten indices last week, previous week, and previous month

Source: www.di.se, www.marketwatch.com

The Shanghai Stock market has performed poorly in 2021 but has also not been affected by recent turmoil as the New York and European stock markets.

Shanghai Stock Exchange Index from April 20 to December 3, 2021

Source: Refinitiv.

One wonders if there are any fundamental explanations for the Shanghai stock market to bucking the general stock markets trend. Below we find China Industrial and Services Purchasing Managers Index for the last two years.

China Mainland, Industrial and Services PMI from December 2019 to November 2021

Source: Refinitiv.

Apart from the plausible drop in February 2020 linked to the Covid outbreak, China's purchasing managers' index has been surprisingly stable in recent months. In recent surveys, service-economy firms are slightly more optimistic than manufacturing, typically 52 versus 49. But the reason for Shanghai's divergence from other bourses may have to be sought elsewhere. Such as expectations of continued stimulus from the Chinese Government. The significant economic risks of a large real estate sector have affected the performance of the MSCI China Financials ETF.

MSCI China Financials ETF performance from October 1, 2016, to December 3, 2021

Buying S&P 500 at MA20 in the weekly graph is not for the faint-hearted

The broad S&P 500 index fell on Friday, given the weaker than expected US job numbers. The index is trading below MA50 as falling EMA9 and MA20 pressure from the above. MA100 serves as another strong support level on the downside. However, note how MACD has generated a sell signal.

S&P 500 Index graph, April 29 to December 3, 2021

Source: Refinitiv Eikon and Carlsquare

In the weekly chart, MA20 still holds. As seen in the chart below, MA20 has been an excellent buy-in opportunity. But it is not for the faint-hearted. One may want to see some indication of the index bottoming out in the daily chart before going long.

S&P 500 index, weekly five-year price graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Scary times in Tesla

The Tesla share price is back close to the 1 000 USD level. A descending triangle formation typically breaks in the longer trend direction – to the upside. However, it looks pretty scary to go long at these levels. In case of a break to the downside, below MA50 and MA100 currently at 843 USD may be next.

Tesla share price graph, April 29 to December 3, 2021

Source: Refinitiv Eikon and Carlsquare

In the weekly chart, EMA9 is still intact.

Tesla, weekly five-year share price graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Nasdaq with a broken neckline

There is a head-and-shoulder-like formation in the Nasdaq Index. With the neckline broken, the formation signals that the index can fall to MA100, currently at 15 407

Nasdaq 100 index graph, April 29 to December 3, 2021

Source: Refinitiv Eikon and Carlsquare

As for S&P 500, the weekly graph still looks good as Nasdaq is trading above MA20. This level has provided good buying opportunities since Q3 2020

Nasdaq 100 index, weekly five-year price graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

VIX and Skew imply investors still fear the downside

As we spoke about earlier, VIX is not looking too happy. Nor is the Skew index indicating that the investors still see downside risk despite the setback.

Source: Refinitiv Eikon and Carlsquare

Perhaps EUR/USD has bottomed out

However, what may look like it has found its bottom, for now, is the EUR/USD price relation. That may explain the 2-year German yield, and US yield is not widening its spread or at least not at the same pace as before.

US Government 2 yr yield and German Government 2-year yield

Source: Refinitiv Eikon and Carlsquare

The chart below shows that the EUR/USD is still struggling with a falling MA20 and the floor of the falling trend channel. A break on the upside and MA50 currently at 1.149 maybe next.

EUR/USD exchange rate quote, April 29 to December 3, 2021

Source: Refinitiv Eikon and Carlsquare

In the weekly chart, one can see how the EUR/USD is hovering just above Fibonacci 61.8:

EUR/USD exchange rate quote, weekly five-year price graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Brent looks pretty uncertain about what's next

The Brent oil price has been falling sharply. It is due to increased production levels decided by OPEC countries and the rise of omicron. But there seems to be a lot of uncertainty at the moment. The large intraday movements can see that but close near its opening. Nevertheless, with some optimistic glasses on, one may say that it looks like the oil price might have found some bottom.

Brent oil price graph, April 29 to December 3, 2021

Source: Refinitiv Eikon and Carlsquare

In the weekly chart, the oil price closed on MA50. But note the negative divergence between MACD and the oil price:

Brent oil, weekly five-year price graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Buy OMXS30 and buy the falling trend

OMXS30 did not manage to close last week above MA200. In case anyone thinks about going long. Please remember that for OMXS30, it's no longer "buying the dip." It's "buying the falling trend."

OMXS30 index graph, April 29 to December 3, 2021

Source: Refinitiv Eikon and Carlsquare

In the weekly chart, it looks a little brighter. Here MA50 still holds. But momentum is falling as visualized by MACD

OMXS30, weekly five-year price graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

In a better market, Volvo may be able to close the gap

Volvo is consolidating under relatively large moves. If markets turn better, Volvo may close the reaching levels above 205 SEK again.

Volvo share price graph, April 29 to December 3, 2021

Source: Refinitiv Eikon and Carlsquare

However, looking at the weekly graph, things look pretty scary. The share is trading below its shorter moving averages in a falling trend. If the floor of the falling trendline is next, we are talking about a downside to the 180 SEK level.

Volvo, weekly five-year share price graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

DAX also have a gap that can be closed…in better markets

There is a pretty lovely gap to be filled in DAX as well. But given the uncertainty, timing is tricky – more like a game of luck. Perhaps place a bet?

DAX index graph, April 29 to December 3, 2021

Source: Refinitiv Eikon and Carlsquare

At least MA50 is still intact in the weekly chart.

DAX, weekly five-year price graph

Source: Refinitiv Eikon and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Full name for abbreviations used in previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence

Important notice

This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future performance.

16/08/2022 05:20:13

 

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