Stock Market Breadth
US and European markets are trading lower as traders are paying attention to warning signs issued by the big companies. The fact that FedEx expects the US economy to enter into a recession has made traders tread carefully, and there aren’t many who are willing to buy the market. It is highly likely that we will see a similar message from other companies in the coming days as well, and that may make the overall sentiment even more negative. The fact is that more and more CEOs are feeling pessimistic about the global economy, and this may not be the best environment for global markets to do well.
This week has been particularly difficult for traders as the big question on their minds is what the Fed will do next about its monetary policy after the CPI number. Yesterday, we also had a mixed bag of economic numbers, but the US Retail Sales numbers and Weekly Jobless Claims number confirmed that things aren’t that bad for the US economy. Nonetheless, the question is by how much the Fed will increase the interest rate given that inflation isn’t dead yet. The CPI number released this week came ahead of expectations of 8.1%, and now many in the market are wondering whether the Fed will increase the interest rate by a full percentage point. We still hold our position that next week’s Fed’s monetary policy is likely to support the market sentiment as the Fed will only increase the interest rate by 75 basis points, not by a full percentage point.
In terms of the forex market, the EUR/USD has dropped below its parity level again as the dollar index picked up more steam. The strength in the dollar index is also prominent against the Sterling, which has pushed the currency lower, and the GBP/USD pair has plunged below the 1.15 price mark again. As for the Yen, speculations continue to brew that the BOJ is more likely to intervene and that brings some strength back to the yen.
Gold prices have been under pressure this week, and this week has not been particularly that great for the prices. Gold prices have dropped for two reasons. Firstly, traders believe that the Fed is going to be more aggressive in terms of its monetary policy, which is driving the price of gold lower. Secondly, despite the fact that we have seen an overall risk-off rally this week, we have not seen any evidence of traders backing risk-off assets like gold. This has taken a lot of shine away from the precious metal, and it has moved closer to our target of 1660. The path of least resistance couold remain skewed to the downside, and we could see the price moving towards its next support, which is 1,600.
Brent and Crude oil prices are on track to record their third consecutive week of losses. Traders are selling their positions because they believe the current slowdown in global economic activity is going to influence oil demand adversely. This makes bullish oil bets less attractive for them. Secondly, traders have started to believe OPEC needs to do more to control supply if it wants to keep oil prices higher. Under the current supply, the chances are that prices will continue to move lower, and we could see crude oil prices easily reaching near the $75 price mark.
Ethereum’s big week is over, and the merge is complete. There is no doubt that the event went off as smootly as an iPhone update. Now, Ethereum has paved a new runway, and we are likely to see a lot more commercial apps taking off from its runway without any turbulence.
In terms of the price action, there is no doubt that many have been excited about this event and the recent rally, which took the price away from its lows of 860, was mainly because of this hype. However, traders thought that when the actual event takes place, they would see a higher price. The disappointment on this end led them to begin the process of profit taking, which triggered a sell-off in the ETH price we saw yesterday afternoon.
If we do not see the ETH price moving above its 50-day SMA on the daily time frame, there could be a more intense sell-off, which means prices potentially moving even lower.
The Asian stock market traded mostly lower on the last trading day of the week. The Nikkei index decreased by 1.07%. The Shanghai index declined by 1.06%, while the KOSPI index decreased by 0.95%. The HSI index dropped by 0.51%.
Dow Jones and S&P 500: Market Breadth
The Dow Jones’ market breadth lost further momentum. 28% of the Dow Jones stocks are trading above their 200-day moving average.
The S&P 500 stock breadth also confirmed some more weakness in its momentum. 23% of the shares traded above their 200-day moving average.
Dow Jones Futures Today
The Dow Jones futures are trading lower today. In terms of economic data, investors will be watching the US Prelim Consumer Sentiment data that will be coming out at 14:00 GMT. The number is expected to print a reading of 60, while the previous reading was 58.2.
The Dow Jones futures have also experienced a serious sell-off this week, and they have given up most of the gains that they scored in the past two weeks. The price is trading below the 50, 100, and 200-day SMA on the daily time frame, which confirms to us that bears are in the driving seat, and this sell-off is only the beginning. Given the pessimism, it is highly likely that we may see further sell-off in the price action in the coming days and today. However, the RSI is showing signs of being oversold and that may bring some of the bargain hunters back into the market.
The near-term support is 28,567, while the resistance is 35,871.
Stock Market Rally
The S&P 500 stock index closed lower on Thursday; the index moved lower by 1.13%. The energy sector led the index higher, and all 11 sectors closed higher yesterday
The Dow index fell on the second last trading day of the week; the Dow stocks moved the index lower by 0.56%. Six shares advanced, while 24 shares closed lower.
The NASDAQ composite, the tech-heavy index, closed lower by 1.43% yesterday.