Markets Bounce Back Following Monday Sell-Off
Benchmark global equities started the week under heavy selling pressure as the build up of investor uncertainty of the Chinese Evergrande situation took its toll over the weekend. Fears of contagion from the potential default of the world’s most indebted property developer risks derailing the economic recovery in potential, posing grave risks for the broader global recovery. Asset markets traded firmly in the red across Monday as brokers cleared pent up sell orders. The sell-off was likely exacerbated given that Chinese markets were off line due to the holiday there. Despite yesterday’s rout, however, across the European open on Tuesday we have seen some buying kicking in at the lows.
Given that Evergrande is facing two large US bond interest payments on Thursday, the recovery buying today suggests that either the market is expecting the Chinese government to step in, or the repayment to be delayed. Another driver is the shift in sentiment ahead of the FOMC tomorrow. In light of the contagion risks from Evergrande, traders are scaling back their hawkish Fed expectations, allowing for markets to recover somewhat in the near term.
Technical Views
DAX
The sell off in the DAX this week saw the market breaking below the 15486.96 level, extending the decline through the rising trend line. However, the market has so far found support into a test of the 15078.83 level. With both MACD and RSI bearish, however, the focus is on a further push lower while 15486.96 holds as resistance.
S&P 500
Following the breakdown below the rising channel last week, the S&P this week extended the sell-off, breaking below the 4383.50 level to test the 4295.75 level support. Price has since bounced back above 4383.50 level. With indicators both bearish, however, there are risks of further losses unless price clears back above the 4475.25 level.
FTSE
Messier price action in the FTSE. Following the breakdown below the rising trend line from 2021 lows, price retested the broken bear channel top and 6895.6 level which is holding as support for now. However, with both indicators bearish, focus is on a further push lower unless bulls can get back above 7137 in the near term.
NIKKEI
The sell off from the latest test of the 30502.8 level has currently found support into a test of the 29464.9 level. With both indicators still bullish, the focus is on a further push higher while this level holds. Below here, however, and the market risks forming a double top structure which would suggest a retest of the broken bearish trend line.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.