And off we go…
We have mentioned countless times that the rise on the exchanges in the US has reached parabolic levels and that such a development will sooner or later collapse under its own weight.
We have mentioned countless times that the rise on the exchanges in the US has reached parabolic levels and that such a development will sooner or later collapse under its own weight. The only real warning signal that existed was that the VIX index, especially for the Nasdaq (VXN) rose at the same time as Nasdaq rose. This meant that the professional investors bought in the upswing while at the same time they bought protection in the options market. Now the professionals have returned to the big trading tables - what´s more refreshing than a small but reasonably large setback to stir the pot?
The monthly figures jobs in August in the United States came in roughly as expected and had only a marginal impact on stock market developments on Friday. But there was no real trigger behind the two days of drama in the Nasdaq index below. On Friday, the index tested below MA20 and all the way down to the nearest Fibonacci level and close to MA50. Thereafter, the index recovered to close just above MA20. Note the weak sell signal in the MACD.
So far, in principle, all downsides on Nasdaq have involved buying opportunities both in the short and long term. The stock market has learned this, which is why the development in pop stocks such as Tesla, Apple and Zoom is extra important now since it is mainly there that the battle between the bears and the bulls is decided.
In Tesla, there was great disappointment that the share was not selected into the S&P500.
The Tesla share has fallen through several levels that should have triggered stop loss, such as EMA9. Last Friday, under high drama, MA20 was tested, but held. There may be a buying opportunity in Tesla now if MA20 continues to hold.
The Apple share was down 8.3 percent on Friday and a full 19.6 percent from its All-Time-High from last Wednesday, when buyers choose to go in and pick up the share.
Already on Wednesday, the Apple stock made a blowout on the upside that created a long scary looking red candle. This was followed by a dramatic decline on Thursday. But the bulls won a big victory on Friday when they managed to recover a decline of just over 8 percent intraday to close barely at plus right around MA20. Also note that a weak sell signal has been created in the MACD. The textbook suggests that the upward rebound can continue for a while longer as there are many investors out there who see the downturn as a buying opportunity. But technically, it is reasonable that there is a downward test of the rising trend line where the MA50 also should be in the cards. In this volatile market, however, you should take one day at a time.
The development for the Zoom share is even more remarkable. Note how the rise in the share exploded to the point that the stock closed above the upper Bollinger band, but that the share is now rapidly falling and is about to closing the gap that was created.
The S&P500´s P/E-ratio 12 month ahead is 22.5x according to Earnings Insight (two days ago). Apple is trading at a P/E 31.3x on FY 2020/21 (1 October-30 September) according to Reuters. Tesla P/E 248.2x on FY 2020 and P/E 136.9x on FY 2021. Zoom P/E 145.4x on FY 2020/21 (up to and including 31 January 2021) and P/E 128.9x on FY 2021/22 (up to and including 31 January 2022).
It is worth recalling once again that the S&P500 index is trading at the same valuation levels as during the dotcom bubble of year 2000. As Nasdaq, the S&P 500 managed to close Friday just above MA20, thus regaining most of its intraday loss. Again, as MA20 still holds, setbacks may be viewed as buying opportunities.
We have also shown the VIX graph countless times and stated that it is time to buy protection when VIX tests the lower Bollinger band. Since then, we have seen an explosion on the upside. On Friday, however, VIX fell by 8 percent when the stock market recovered. What can be viewed as a buying signal in the S&P500 is when VIX closes inside the Bollinger Bands – which is exactly what happened on Friday:
As shown in the EUR/USD chart below, the currency pair is pushed downwards by EMA9 and MA20 towards the floor of a short rising trend channel under a falling momentum. A continued strengthening of the USD results in a dampened stock market in the US.
The German DAX index should however gain momentum from a stronger USD as one USD is converted to more euros having a positive effect on corporate revenues in USD. However, DAX closed Friday’s trading below EMA9 as well as MA20 and is getting pushed towards the rising trendline and MA50. A break on the downside calls for further decline with MA200 right under the 12 200-level as target price. A bounce in the USD may however very well have positive effects on DAX index.
OMXS30 was one of few indices that managed to stay above the water line on Friday as the index closed marginally up by 0.1%, right above a rising MA50. On the upside, the two psychologically important levels at 1 770 and 1 800 serves as resistance.
The Brent oil closed Friday’s trading below Fibonacci 61.8 which can be viewed as a sell signal. The OPEC countries must step in and buy support here or else it is likely for the decline to accelerate. The next level on the downside can be found around 38,9 USD/barrel where MA100 meet up followed by Fibonacci 50 around 38.1:
Bitcoin fell sharply on Thursday and is currently wrestling with a support between Fibonacci 38.2 and a rising MA100. Note that MACD has generated a sell signal. In case of a break to the downside, the next level can be found right below of 9 500 where Fibonacci 50 meet up.
This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.
The products are not capital protected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.