We believe in Santa Claus, despite Covid-19
The Euro is now starting to test levels above 1.2 against the USD, which the ECB previously said is a critical point for them. There is now a great deal of debate about whether the ECB should intervene in any way against this strengthening of the Euro, which in the longer run will weaken Europe’s competitiveness against the rest of the world.
After Pfizer and AstraZeneca came up with positive results on their development of a vaccine against Covid-19, the stock market has performed strongly. But at least we feel that the Christmas calm has started extremely early this year. We are encouraged to stay at home, which reduces activities. But we also experience that it has been taken as a reason to take an early Christmas break.
At train stations and the metro, traffic in Germany has decreased by 43 percent compared with January 2020. At workplaces, the reduction amounts to 30 percent.
In Germany, visit to restaurants, cafes and other public places have decreased by 23 percent.
There are high hopes that 2021 will be a positive year after the lousy 2020. We will see when the vaccines are rolled out how soon the societies can restart and what is really left of the underlying economy.
One of the best parameters that implies that the stock market has discounted a turnaround of the economy is the price of copper. The price is also raised by the fact that transportation worldwide has been disrupted, but also due to strikes in Chile. Copper is trading above a rising EMA9 but note how the MACD histogram is falling. The question is still whether the copper price will collapse or just catch its breath before a new upswing phase.
The weaker USD has supported the copper price, like most commodities quoted in USD. Below is EUR/USD shown. The currency pair is still trading above a rising EMA9 acting as a support when momentum is positive but fading:
Another important parameter is the demand for semiconductors globally. The SOX index reflects this in the form of an index for semiconductor manufacturers. Almost the same parabolic price rise can be seen here. Like the copper price, this is very important to understand what is happening in the markets.
The doubts that exist on the stock exchanges are perhaps most visible on the technology-heavy Nasdaq index, which has been leading throughout the rise in 2020. Note how MACD has generated a weak sell signal and that the index now finds support in the old trendline and MA20. A breakthrough MA20 points to a decline to MA50:
The Apple stock is trading below its top from early September. The stock is however trading in a short rising trend above the EMA9, MA20 and MA50. MACD is also trading upwards. Let the trend be your friend?
The S&P 500 index looks like Nasdaq. MACD has generated a weak sell signal but the index is supported by MA20 and a shorter rising trendline:
Bitcoin has closed the gap and a possible local bottom has been created:
The DAX index seems to never be able to close the gap from February. Momentum is declining and a rising euro is a bad medicine. The psychologically important 13 000-level serves as a support:
The OMXS30 index has also lost momentum but is supported by the 1 880- and the 1 855-level as well as a rising MA50:
The copper price is trading upwards, but the Boliden stock has lost its momentum. Note how the stock closed Friday’s trading well below MA20. The next level on the downside is found around 278 SEK/share, where Fibonacci 23.6 meet up:
But does Santa really arrive every year?
Typically, we are in the strongest stock market period of the year. The S&P index has the strongest months from late October to the end of January. The period February-March are messy months as well as the summer months August-September.
In the graph above, we have compared the last six months’ trading with USD, gold, copper, and the Amazon stock at the bottom. The pattern is very clear that the S&P500 index and the USD are trading against each other, so when one rises, the other falls. The gold price and the Amazon share have not been in demand this autumn, but there are hopes that, of course, 2020 was a lousy year, while 2021 will be fantastic.
If we go back in time a year, this is to last Christmas, the pattern was more according to the schoolbook. Stock markets tumbled, the USD fell while gold, copper and Amazon shares rose. Note, however, the sharp rise in the USD after the New Years’ bells rang. This caused the stock market and, above all, the price of copper to fall in the new year.
The year before 2018-2019, Christmas eve created a perfect turnaround for the stock exchanges. We doubted Santa that year, but just realized that he wanted to create a proper New Year’s rally instead.
2017-2018 was again according to the schoolbook - an absolutely perfect year.
We end with 2016-2017, which most people probably thought would be a gloomy year when Hillary Clinton surprisingly lost the presidential election against Donald Trump. But it turned out the other way around…
So we still believe in Santa Claus, but the variations over the years show that he is not always punctual or rational.
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