Intraday Market Thoughts

The Moment of Truth?

by Adam Button
Sep 21, 2020 23:15

There are a long list of great uncertainties in financial markets right now but those contrast with an unprecedented level of certainty about interest rates. The US dollar was the top performer while the New Zealand dollar lagged. The US Richmond Fed and existing home sales are up next. The Premium DOW30 trade hit its final target of 27050 for 1210 pt gain and last week's DAX trade completed 390-pt gain. By the time Nasdaq completed its 14% high-to-low decline, it ended up outperforming DOW30 and SPX. Yet, all indices remained below their 55-DMA. Do not waste timeSkip to the 5:00 mins of the clip of the Sep 3rd video (week of Sep top) to hear Ashraf's PRICE & TIME call for DOW30. 

Since the pandemic bottom, the balance of rates vs uncertainty has tilted towards the massive influx of central bank easing. It's led to unprecedented bounces is equities, a major move in gold and never-before-seen lows in interest rates.

By many metrics, it's gone too far. Then again, central banks may have also gone too far. In explaining his FOMC dissent on Monday, Kaplan said the Fed risked inflating a bubble by pledging to keep rates at zero even after its goals are accomplished.

Up until Monday, the dip in technology stocks was largely ignored by the FX and rates market. That changed with equities taking a broader leg down on Monday, led by Europe. What may have changed is that rising COVID case numbers are triggering fears of new restrictions. The US has so far shown a high threshold for COVID-driven economic weakness but other jurisdictions haven't been challenged in the same way. Most likely, the kinds of numbers many US states are tolerating right now would lead to major curbs in the UK or Canada but that remains to be seen.

The balance of it all begs for another look at the charts. Despite some larger moves on Monday, there were few breakouts. Cable held the Sept low, the euro rebounded back into the range from a five-week low and gold finished back above $1900. Here is a recap of Ashraf's calling the top of gold & silver 15 hrs before the peak. 

Note too that markets bottomed in June on the Monday after the FOMC.

In spite of the mountain of worries, the potential for a vaccine and easy policy are powerful tools and it's far too soon to say that balance is broken. Ultimately, it will come down to the charts and the data. On Tuesday we get August existing home sales (exp 6.0m) and the September Richmond Fed (exp +12). 

Soft numbers and other day like Monday would be a strong signal.


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