Sunday, 11 March 2018
World stock markets are going to see, perhaps, a positive opening in Asia on Monday. But overall, the trend for next week can continue to remain highly volatile and mixed.
Technical, political and local factors will continue to drag global stocks in different directions. U.S. stock markets can turn choppy next week, notwithstanding the short covering rally in theses market in their previous session.
U.S. stock markets had a wonderful session on Friday, when everything went right for those markets. Trump-North Korea meeting was announced, reports said that there may be exemptions from proposed steel and aluminum tariffs and the U.S. labor market reports came exceedingly better than estimates. U.S. stock futures surged on this all-round optimism, major U.S. indexes opened with big gaps up and continued to rally upwards. Nasdaq snatched a new record high.
But, over the weekend, all these optimistic scenarios have reversed. Trump once again blasted European Union on Twitter for unfair taxes, reigniting worries of a trade war with European countries. He also tweeted that the time and place for meeting with the North Korean leader is yet to be decided. So, these two feel-good factors for U.S. stocks have now evaporated.
Politically, reports of Trump White House looking to hire an impeachment lawyer can also dent investor confidence in U.S. stock markets.
Technically also, last Friday’s rally in these markets is not supported by other signals. Volumes remained low and the RSI indicator did not jump with prices, indicating a negative divergence. These factors mean that that rally was triggered by more of a short covering than any fresh buying in U.S. stocks. Even Nasdaq did not show any volume increase with its high jump.
With these developments, it should not be surprising if U.S. stock futures turn negative in the early trade on Monday.
Looking at the technical chart of Dow Jones, one can see how the index has been trading range bound and has been finding support and resistance at important fibonacci levels. Again, it will be not be surprising if this mega index finds resistance near its previous high level.
Going by these technical levels, Dow Jones has a new support near 25,000 (which was earlier its major resistance level) and its previous session’s intraday trading range will also be its immediate trading range in the next session.
(Of course, if U.S. stock futures continue to surge forward, then we can expect this index to target the next higher level of 26,000.)
European stock markets had shown a slight increase when U.S. stock futures rallied in that session. But, by the closing bell in European stock markets, DAX (Germany) had turned negative and Euro Stoxx 50 index had given up earlier gains to close nearly flat.
This shows that euro zone markets will trade mostly range bound and remain highly volatile. The trading pattern in major European stock indexes has stayed within a broad range and it seems, that technically, these markets will continue to trade below their current range top levels.
Asian stock markets are expected to open with big jump since their futures had rallied with the rally in U.S. stock markets on Friday. SGX Nifty had rallied nearly 100 points in late trading which can trigger a big gap up opening in Indian stock markets too, on Monday.
But after a positive opening, the trend in global stock markets will depend on how U.S. stock futures trade. If U.S. futures turn negative, then other markets will also trim their gains.
However, if U.S. stock futures continue to trade positive, then global stocks can add to their opening gains.
As we have been writing, global stock markets have been trading within a broad range and keep trading positive/ negative from their range resistance and support levels.
Apart from intraday pivot levels, fibonacci levels within that range provide excellent trend indications and trading opportunities. Day traders should take help of these broader fibonacci levels to keep track of long term trend as well as pivot levels for short term intraday trend.
Expect an interesting start to global stock markets on Monday. The intraday trend will depend on how U.S. and European stock futures respond to Trump’s renewed threats of tariff- way against the European Union.