The Shanghai composite in China plunged 6.1% in trading during today’s Asian session reigniting fears amongst investors the worst is not yet over and that the PBOC (People’s Bank of China) may devalue the Yuan further. This selloff spread to other global indices with the DAX, CAC and FTSE 100 all down on the day. These fears could be further exacerbated if the Fed decide to raise rates at their September meeting, which would see further global stock market declines – see article here
Yesterday the New York Fed’s Empire State Index came in at -14.92, far below economist expectations of 5% – it’s lowest level since the Great Recession back in 2009. The Empire State Index is seen as an indicator to U.S. Factory conditions, with a reading above 0 indicating growth. This saw sharp declines in global equity markets yesterday, leaving investors with renewed fears about the future direction of these already lofty highs in asset prices.
Looking at the Daily chart of the DAX below, one can see these fears started to rear their ugly heads as the index closed BELOW its 200 day moving average (green line) for the first time since the European Central Bank announced it’s €1.1 Trillion bond-buying program back in January of this year. This is an important juncture for the index which now turns the long-term bias from Bullish to Bearish until price closes back above the 200 day moving average.
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Looking at the Hourly chart of the DAX below, you will see after yesterday’s large sell off, price has struggled to get back above the 11018/10987 zone which is currently weighed down by the Hourly 100 MA (blue line) looming above.
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CONCLUSION – BEARISH
Price is non-trending today, with moves gyrating between the 11018/10987 and 10892/10856 zones. Looking at the 5 minute chart below, you will see how the 100/200 MA’s are keeping a lid on price advancing higher. This will be a good barometer of market sentiment in trading today. If price manages to break & hold above these two levels, then the Hourly 100 MA will be the next area to break & hold against. If this happens, the market may close above the 200 day MA which would turn sentiment from Bearish back to Bullish.
Be careful in trading today as price can have the habit of chopping up and down for a few days when coming into important areas of support (namely the 200 day MA), as to whether we are entering into a new Bear Market or clinging onto the bottom of a Bull market before moving back higher.
For Bulls, areas of defined risk are against the daily lows of 10885 and into the 10892/10856 zone generally. Price ideally needs to take out the 11018 level in trading today for the Bulls. Risk averse investors will be entering into the market on a break above the Hourly 200 MA currently at 11262.
For Bears, shorting opportunities with defined areas of risk reside on pullbacks into the 100/200 MA’s on the 5 minute chart, Hourly 100 MA and the 11018/10987 zone. Risk averse traders will be entering short on a break of yesterday’s low at 10815.
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Bearish targets :-
- 10815 (Yesterday’s low)
- 10788 (Extension of Daily range – 22 day average 202 pips)
- 10750 (Weekly S1 Pivot)
Bullish targets :-
- Hourly 100 MA
- 11087 (Extension of Daily Range + yesterday’s high 11084)
- 11194/11174 (Key zone + Weekly Pivot 11187)