Market Analysis 18/08/2019
By: Sean Cartwright
As anticipated, this week proved to be a very volatile one in the markets.
Equities
Equity markets are now looking much worse than they did this time last week.
An important aspect when assessing a market or security is the price value. However, it is not the most important. The most important is the way the price acts and reacts to your expectations. Wednesday (in the US, which resulted in a large gap down on Thursday in our market) was a terrible day in terms of action. The SPX dropped 3.3%, and to me this drop is far more worrying than the 5% drop the index had on Monday the previous week (5thAugust), as it was the first sign of a rally back up being rejected. The XJO weekly chart closed below the 20-week moving average, a key support level, so I’m watching to see if we can get some bounce above early next week, or else we could be looking at some more significant downside.
I am now 100% in cash and will be looking for some position shorts this week. If the market has truly turned here and we’re looking at a bear of sorts, all these high growth and tech names trading on ridiculous price to earnings ratios are in for a real shock, it wouldn’t surprise me to see some of these names that have been so strong for years, down well over 50% from here.
SPX Daily Chart. Source: ProRealTime
XJO Weekly Chart. Source: ProRealTime
Big week ahead in terms of reporting season, some dates of key names below:
Monday 19th: ALU, BSL, LLC, NHF
Tuesday 20th: BHP, CHC, KGN, MND, OSH, SEK, SHL, TGR
Wednesday 21st: A2M, BXB, CWN, DMP, DTL, ILU, NEA, SBM, WOR, WTC
Thursday 22nd: BIN, CCL, COL, FLT, MPL, ORG, PPT, QAN, QUB, S32, STO, Z1P, WEB
Friday 23rd: CGC, GMG, IRE, MYX, PLS
Commodities
It was a bit of a boring week in commodity markets and we didn’t see large moves in anything notable. Interesting to see the lack of sustained buying in Gold (+1.1%) and Silver (+0.8%) as the uncertainty around equities remained high, while Nickel (+3.6%) continued its strength from the week before.
Nickel Daily Chart. Source: ProRealTime
Gold/USD Weekly Chart. Source: ProRealTime
Bonds
Just a quick note on bonds; fixed income markets have been booming recently alongside the uncertainty in the equity markets, however, last week we saw the 20+ year US treasury bond hit a major resistance trend line and it is definitely something to watch this week given the recent run it’s had.
TLT (20+ Year T Bond ETF) Monthly Chart. Source: ProRealTime
Forex
The AUD is currently trading at 67.8 US cents and 61.1 Euro cents.
In the Forex market, there are some key dates this week that could see some high volatility in the currency markets. Tuesday, the RBA meeting minutes are released. This will give us further indication of whether a rate cut is expected. My thoughts are that we will see one more cut before the years end and having two cuts, while not likely, is very plausible.
On Wednesday, the FOMC minutes are released which will give us insight into what the folks over in the US are thinking, Thursday the ECB monetary policy meeting accounts are published and on Friday, Fed Chair Powell’s speech. All these events are expected to be relatively high volatility events and should be traded accordingly.
Have a nice week all
Disclaimer: The views expressed in this article are the author’s, and do not necessarily reflect the position of UNIT nor the University of Melbourne. Transacting off this information is done so at one’s own risk, and individuals are encouraged to consult a finance professional before making investment decisions based off this article.
