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Bulls And Bears Battle Between Breakdowns And Bounces

Published 2016-02-11, 09:40 a/m
Updated 2021-08-03, 11:15 a/m

Stocks and commodities are trading sharply lower again this morning, with breakdowns across a number of markets signalling the start of another downleg in the current bear market.

The Hang Seng returned to trading with a 3.8% drop while Japanese and mainland China markets were closed for holidays. In futures trading these markets have continued to drop with Hong Kong futures now down 6.7% and Nikkei futures down 3.0%. European indices are also taking a big hit today with the DAX and FTSE both down about 2.2% and several continental indices down even more than that. US markets are also getting caught up in this wave of renewed selling pressure with Dow and S&P futures down about 1.9%.

The most significant aspect of today’s trading is the number of markets that have broken support levels to signal new downlegs starting today including WTI crude oil below $26.60, the NASDAQ 100 below 3,900 and the FTSE 100 below 5,600. These markets and others now find themselves at a key turning point. Rebounds off of morning lows and retests of breakdown points suggest we could be near a selling climax, but if markets can’t rebound further and the breakdowns are confirmed, it would mean the bears have found new strength and we could see additional weakness in the coming days.

Just as capital continues to exit risk markets, it continues to flow back into defensive havens, particularly gold which has blasted through $1,200 and USD/JPY which plunged down to 111.00. These markets have been getting overextended and have started to show signs of exhaustion.

In currency action today, USD continues to trend lower while traders gear up for a second day of Yellen testimony and questions. EUR is up against USD while GBP is down, CAD is also falling along with oil prices although at a slower pace and not confirming the WTI breakdown.

SEK has been falling after Sweden’s Riksbank cut interest rates deeper into negative territory, indicated negative rates are working for them and further cuts are possible, and threatened to intervene in forex markets if the SEK rallies too much.

The main reason fear has been running rampant in the markets today appears to be a lack of news to cling to and what news there has been was bearish. Dr. Yellen’s testimony appears to have been geared to give the Fed maximum flexibility going forward. Sweden’s dovish central banks raises questions about the health of the European economy (and the banking systems in some other countries, not Sweden itself).

Meanwhile, stateside, we could see significant reactions in stocks today to overnight earnings reports particularly Twitter's (N:TWTR) slowing subscriber growth and Tesla's (O:TSLA) soft deliveries guidance. It’s also a bit day for Canada earnings with a particular focus on mixed results from the big insurers and more dividend/capex cuts in the oil patch.

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