Stock Market Breadth
US futures are trading modestly higher on the final trading day of the week as traders are hopeful that the US Producer Price Index data will give us more good news about US inflation. Traders have been optimistic about the US inflation data since the release of the previous CPI reading, and another reading of CPI data will be released which will really make or break the Santa rally. There is also optimism in the market as the inflation data in China emerged in line with the market expectations, and this indicates that inflation readings around the globe, especially in the countries that matter the most, have started to move in the right direction. This will reduce the pressure on the central banks to take their foot off the hawkish monetary policy, which has been the key reason for the economic slowdown.
In terms of the forex market, we have seen a lot of strength coming back for the EUR/USD pair, which is on track to record another week of gains. Most of the strength in the currency pair is mainly due to the weakness in the dollar index, as traders do not expect the Fed to maintain its ultra-dovish tone in their meeting taking place next week. In addition to this, economic data that we have seen out of the Eurozone this week, such as the inflation numbers, have also indicated that the ECB needs to worry less about economic growth as inflation is likely to be under control.
As for the GBP/USD, we have seen some encouraging price action, but the currency is struggling to score gains for the week. This is chiefly due to the cost-of-living crisis in the United Kingdom remaining a major obstacle for consumers who are increasingly more reluctant to spend more due to their rapidly eroding income.
The precious metal is trading where it started the week, and this week’s gains have been minimal if any. The main reason has been profit-taking among traders who decided to cash in after the market recorded a decent rally last week. In addition to this, market players certainly did get ahead of themselves last week, thinking wrongly about the Fed’s monetary policy. The fact is that the Fed is still on its hawkish monetary policy, and yes, they may not be increasing the interest rate by the same magnitude, but interest rate hikes are still in the pipeline, and they will continue to take place. This means that the dollar index will recoup its lost ground, and the chances are that we will see the dollar index moving higher. This week, we have seen signs of the dollar index fighting back and recovering some of its losses, pushing the gold price lower.
Brent and Crude oil prices suffered more losses, and bulls suffered an intense nosebleed. This is chiefly the summary of the price action when it comes to the price action of oil prices this week. Traders are concerned that good days are gone for oil prices, when there were serious concerns about oil supply. It seems like there is more than ample supply and the lawmakers in the United States are still encouraging oil drillers to pump as much oil as they can. A lot of this could be mainly due to the deteriorating relationship between China and Saudi Arabia, as China is extending its friendship hand towards Saudi Arabia. This week we have seen a major economic deal taking place between the countries, and if China does succeed in becoming closer to China, the United States needs to make sure it is fully dependable on its oil supply. We do not think that traders have paid much attention to this developing situation and the price action certainly needs to factor in this evolving situation.
On the technical side, there is no doubt that both Crude and Brent oil prices have been highly oversold on the daily time frame as per the RSI. This means that there is a possibility that we could see some buyers coming back to the market.
The crypto industry is still feeling the after-effects of FTX, and all the negative news about the exchange still influences the price of Bitcoin. There is an exciting element to note here, and even though there has been so much bad news about the industry and some serious concerns about the domino effect, BTC prices are still trading above the 15’000 price support. This is a highly encouraging sign for those who pay attention to price action. Another positive element that traders need to keep in mind is that individuals like Elon Musk are still very much believers in Bitcoin, as he publicly said in a Twitter conversation; that he believes that cryptocurrencies like BTC, Ethereum and Dogecoin will make out of this storm.
But for now, the focus continues on the aftermath of FTX, and investors are nervous about the next big company or project collapsing, as the reality is that FTX had its fingers all over the place, and the exposure has been significant. At the same time, the silver lining is that most of the bad news is being flushed out, or it has already been flushed out, so there is less bad news left for the industry. In addition, one of the best signs of a bear market coming to an end is when bad news doesn’t influence the price as much as many had anticipated. Looking at the Bitcoin price, we are not far from reaching that level.
The Asian stock market mainly traded higher on the week’s last trading day. The Nikkei index increased by 2.1%. The Shanghai index soared by 0.65%, while the KOSPI index gained 0.67%. The Hang Seng index moved higher by 1.82%.
Dow Jones and S&P 500: Market Breadth
The Dow Jones’ market breadth gained further momentum. 65% of the Dow Jones stocks are trading above their 200-day moving average.
The S&P 500 stock breadth also confirmed some more strength in its momentum. 56% of the shares traded above their 200-day moving average.
Dow Jones Futures Today
The Dow Jones futures are trading higher today. In terms of economic data, investors will be looking at the US PPI reading, which is coming out at 1:30 PM GMT. The number is expected to print a reading of -0.2%, while the previous reading was the same.
The Dow Jones futures have experienced a minor sell-off this week and have given up some of the gains they scored in the past weeks. The price is still trading above the 50, 100, and 200-day SMA on the daily time frame, which confirms that it is bulls in the driving seat, and this sell-off is only a retracement. Given the optimism about de-escalating geopolitical tensions, we may see further gains for the Dow Jones’s price action in the coming days. The RSI has also eased off from its overbought levels and that could stimulate more buying.
The near-term support is 32,855, while the resistance is 35,271.
Stock Market Rally
The S&P 500 stock index closed higher on Thursday; the index moved lower by 0.75%. The real estate sector led the index higher, and only 2 out of 11 closed higher yesterday.
The Dow index increased on the second last trading day of the week; the Dow stocks moved the index lower by 0.55%. Two shares advanced, while 28 shares closed unchanged.
The NASDAQ composite, the tech-heavy index, closed higher by 1.13% yesterday.