Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Never Underestimate China

Published 24/08/2015, 09:13
Updated 09/07/2023, 11:32

Global market sell-off begins with various scenarios that played out timely in August 2015 - growing fear and loss of confidence of a sustainable economic growth, escalating currency wars, threat of global deflation and many more. Going back to all our past weekly report, we remain adamant that the global recovery is a fragile one and over the last few months we have seen such complacency taken to a brand new level.

Pampered market such as this needs a hard landing every now and then but we have to take note that the previous equity sell-off in the US are saved with promises of more helicopter money (see chart below). With such precedence, one can only wonder if we will see the same setup for Great Britain, Japan, China and every other tom, dick and harry that have launched QE programmes of their own.

S&P 500 Annotated Chart

The stars are aligned that kick start the sell-off with early signs that the VIX and developed market equities initially remained utterly complacent and unabated. As they often say, sell-off does not happen in one flush – rather it was a build-up step by step distribution process. Last week, we have seen the VIX index exploding higher after a short span of docile period. Technically, it has a double bottomed and series of market event has certainly create the need to buy such insurance. There is no way of telling that it has reached a top – we do not have a crystal ball for that. In fact, the only observation that we can make it that often we need to see another high on the VIX – sort of a blow-off top formation.

VIX Weekly Chart

Recent political tension between North and South Korea only increase uncertainty as shots were fired. Tsipras resigned and further uncertainty into Greece debacle will no doubt play an overcast role in the coming months. Turkey Lira plunged as Erdogan faced with internal battles and potential terrorist situation. Price wars in the global oil market continue, adding pressure on other industrial metals to suffer.

Producers are forced to consider limiting their investments, worries of potential cuts are looming while future earnings are revised lower to discount the recent economic and political situation at best. We cannot catch a break here on outlining what we would call a week of mayhem as it could not get any worse.

Commodity Prices vs Baltic Dry Index

Bloomberg Commodity Chart

“Understandably, the global debt will and need to continue higher in the hope that it will “eventually” trickle-down to the rest of the economy. Central banks are fast running out of option and tools to revive the ailing global economy but the resistance must go on. It will not surprise us that during Miss Yellen tenure as the Fed chairwoman – that she will consider another quantitative easing AGAIN!”

Take heed of the last 2 graphs as they play a big role in explaining the divergence on what financial media portrayed of an economic recovery to the actual economic situation that we have been explaining for months. The world is oversupply, complacent, pampered and very much ignorant. Price crash such as the above means the industry has to change and such changes will happen over the next few years.

Dollar Technical Outlook

Post FOMC statement remains inconclusive of a September rate hike – dollar bulls run for the exit and there were practically no buyers. Sellers squeezed out of the tiny door that they can find. Escalating currency wars may have helped revived talks of a remote QE 4 if the global economy tanks (we think this is unlikely) but there is real fear in the market place so any sell the rumour could easily sparked more sell off. With the VIX running so high, there is no escape of further selling. However, we do note that there price action is fast reaching a confluence support zone. Failure here could means more trouble ahead on the dollar.

DXY Weekly Chart

DXY Daily Chart

The AB=CB has played out to perfection and as per last week commentary (see below) we envisaged the dollar to have a dead cat bounce followed by a sell off to the following target of 11900. It has never been an easy read on the dollar index but someone is selling big and there is real fear that 2015 (take note we did not mention September or December here) may not happen after all. Technically, the dollar index should find some relief buying as it has reached an important juncture. Price action has spiked out of the megaphone pattern and this means more trouble ahead. A retest on the break out level may be the least of a dead cat bounce but never discount that it could revived IF talk of rate hike is back on the table.

“We may have buy the rumours and sell the fact scenario again – meaning that we could see the dollar kick off on a strong foot next week but a sell off could play out here. The bearish candlestick on the weekly is so dominant but we will wait for a retracement first to 12020 – 12040 levels before we see further selling to target the 50% Fib retracement where strong support are seen at 11900 area (see the weekly chart black arrow).”

DXY Seasonality Chart

Gold Technical Outlook

We are now looking for a pullback in the price of the yellow metal after an impressive run. Tension and uncertainty in the market with the selloff in the dollar index has certainly helped gold to rocket higher. However, we cannot ignore the fact that we are near resistance zones and potential reversal zone. If we do break out above 1200 and close above – then shorts are in heap of troubles (short covering rally will kick in then). Please take note that the bigger picture of a bear market in gold has not changed at all. Thus, we cannot discount another sell off. Only a close above the 20 WMA will get us excited again. We only highlighted one potential IHS formation but there are many possibilities lying around for IHS.

Position

Valid Date

Price

Action

Stop Loss

Target

Results

LONG

10th – 14th Aug

1105

Closed

1090

1135

+30

XAUUSD Weekly Chart

Gold Seasonality Chart

Silver Technical Outlook

Last week commentary was spot on though we missed the entry to long Silver at 14.70 by 4 points. The break above 20 DMA and retest of the breakout level was a healthy sign of a bounce. Buyers are ready to take prices higher but take note the price action remains volatile. We have seen the yellow metal has a 2nd green week on the candlestick – more often than not – pullback is due. Watch the daily Silver chart as the RSI is heavily diverging here and it could be an early sign that we see pullback both in gold and silver next week. Key level of support will be the 20 DMA again and we will not be surprise to see price break below and buyers need to step in then.

“Silver put in a positive week after closing above the 20 dma that is the signal to enter long. In the short term, we see pullback to retest for support at the breakout zone and potentially at the 20 dma again. Only a close below the 20 dma will changed our view – but this pullback could prove to be a buying opportunity. At the start of next week, we envisage weakness in silver after putting in a double top on the daily chart.”

Trade: Our order missed by a few pips but we will maintain the order as we see a pullback on Silver to retest for support at previous breakout level or at least the 20 dma again.

Position

Valid Date

Price

Action

Stop Loss

Target

Results

Long

24th – 28th

14.80

Order Placed

14.60

16.00

XAGUSD Weekly Chart

XAGUSD Daily Chart

Platinum Technical Outlook

Platinum prices may pullback too after an impressive run up to break past the psychological level of $ 1000.00. A test of support at 20 dma has given confidence on this bounce – while a break out of the Bollinger band and above 50 dma may well be sign of bull exhaustion. We may well see higher prices still but watch out for a deeper pullback.

Trade:

Position

Valid Date

Price

Action

Stop Loss

Target

Results

Platinum Weekly Chart

Platinum Daily Chart

Palladium Technical Outlook

We have the bounce in Palladium but the sudden gapped lower left many questioning about this bounce. Price action went close to our target zone but for now, we may well get to our previous weekly zone of 577 levels.

“Palladium price action played out as we envisaged and the weekly chart is showing a bullish divergence on the RSI with a potential double bottom formation. A short term bounce is expected initially to target 634 – 663 levels.”

Position

Valid Date

Price

Action

Stop Loss

Target

Results

Long

24th – 28th

577

Order Placed

567

680

Palladium Weekly Chart

This article is written according to the author’s views and by no means indicates investment purpose. Opinions expressed at Sharps Pixley Ltd are those of the individual authors and do not necessarily represent the opinion of Sharps Pixley Ltd or its management, shareholders, affiliates and subsidiaries. Sharps Pixley Ltd has not verified the accuracy of any claim or statement made by any independent writer and is reserved as their own and Sharps Pixley Ltd is not accountable for their input. Any opinions, research, analysis, prices or other information contained on this website, by Sharps Pixley Ltd, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. Sharps Pixley Ltd will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The data contained on this website is not necessarily real-time or accurate.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.