Europe Up For a Rally?
DAX 30 Index CFD, 4-Hour Chart Analysis
While global stocks finished a very volatile week on a negative note, with trillions of market cap being now erased during the current downtrend. Although it’s premature to say that we are in a global bear market, since US stocks are still faring better than the rest of the world, the last here weeks so a meaningful deterioration across the globe.
That said, in European and Asian markets, we saw signs some resilience towards the end of the week, and as those regions have been relatively week for several months now, we could be in for a more durable oversold rally in equities.
Our best guess for a catalyst is still a budget deal between Italy and the European Union, as the European Central Bank didn’t calm markets with a dovish surprise. The bank and its President Mario Draghi tried to distance itself from the Italian crisis, most likely to put more pressure on the government, so the coming week might be crucial for the indebted country.
Apple to the Rescue Again?
AAPL, 4-Hour Chart Analysis
While this week’s earnings were far from disastrous, a lot of companies guided lower for the coming quarters, and that, together with the gloomy sentiment caused a negative reaction to a lot of otherwise decent reports. Apple (AAPL) and Facebook (FB) will be the two most important firms reporting next week, and it’s hard to gauge the outlook for the tech sector in the light of the already published numbers.
Out of the market-leading tech giants, Microsoft (MSFT) reacted well to a great quarterly report, similarly to Intel (INTC), but Amazon (AMZN) outright crashed and entered a bear market on Friday, at least regarding the percentage loss.
Google parent Alphabet also fell on the last session on the week, and the Nasdaq closed the week near its 5-month low despite performing slightly better than the other benchmarks this week.
All Eyes on the Bank of Japan
USD/JPY, 4-Hour Chart Analysis
The Japanese Yen has been one of the winners of the recent turmoil in equities, with the traditional safe-haven currency pushing higher across the board, and gaining ground even against the rallying Dollar. The Bank of Japan is facing an interesting decision, as recently, the Central Bank tilted towards the normalization of its monetary policies, albeit not openly, following in the footsteps of the Fed and the ECB, and as the Yen has been weak, everything looked all right.
The BOJ has been focusing on the 0% target in the 10-year yield, and as it managed to achieve its goal without reaching its asset-purchase target amount. So while the bank has some flexibility with regards to Quantitative Easing to try to curb the Yen’s appreciation, we still think that a verbal intervention might follow after the monetary meeting on Wednesday.
Major US Indices in Correction Territory as DOW Outperforms
Dow 30 Futures, 4-Hour Chart Analysis
The Dow is now the only key benchmark that hasn’t officially entered correction territory, although the 9% decline in the industrial average is close enough. The S&P 500 and the Nasdaq are both through that threshold, while the Russell 2000 fell by almost 15%, well on course to enter bear market territory.
Given the still lofty valuations on Wall Street, we still wouldn’t enter the market as a long-term investment, even as we still expect violent counter-trend rallies. Small-caps had a relatively strong Friday and together with the stability Asia and Europe that could signal more bullish period ahead.
The Final Week of Campaign Before the Midterms
Despite the eventful week in politics and the pipe bomb scare, not much has changed in the outlook for the midterms, with the Democrats still being likely to take control of the House but not the Senate. Should the Senate come in to play next week, it could add to the bearish pressure, as it would raise political uncertainty. Donald Trump will likely try to change the current narrative, with a possible push towards his recently announced tax-cut plans, so we could be in for a very active week in US politics.
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