Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19
Where is the Top for Natural Gas? - 7th Nov 19
Why Fractional Shares Don’t Make Sense - 7th Nov 19
The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think - 7th Nov 19
China’s path from World’s Factory to World Market - 7th Nov 19
Where Is That Confounded Recession? - 7th Nov 19
FREE eBook - The Investment Strategy that could change your future - 7th Nov 19
Is There a Stock Market Breakout Ahead? - 6th Nov 19
These Indicators Aren’t Putting to an Economic Resurgence - 6th Nov 19
Understanding the Different Types of Travel Insurance - 6th Nov 19
The Biggest Gold Story Of 2020 - 6th Nov 19
Best Money Saving FREE Bonfire Night Fire Works Show Sheffield 2019 - 5th Nov 19
Is the Run on the US Dollar Due to Panic or Greed? - 5th Nov 19
Reasons Why Madrid Attracts Young Professionals - 5th Nov 19
Larger Bullish Move in USD/JPY May Just Be Getting Started - 5th Nov 19
Constructive Action in Gold & Silver Stocks - 5th Nov 19
The Boring Industry That Hands +500% Gains - 5th Nov 19
Stock Market Chartology vs Fundamentals - 4th Nov 19
The Fed’s Policy Is Like Swatting Flies with Nuclear Weapons - 4th Nov 19
Stock Market Warning: US Credit Delinquencies To Skyrocket In Q4 - 4th Nov 19
Stock Market Intermediate Topping Process Continues - 4th Nov 19
Stock Market $SPY Expanded Flat, Déjà Vu All Over Again - 4th Nov 19
How To Buy Gold For $3 An Ounce - 4th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Peaking Risk Appetite Reversal Sends Crude Oil and Stock Markets Higher

Stock-Markets / Volatility Aug 23, 2009 - 12:49 AM GMT

By: Ashraf_Laidi

Stock-Markets

Best Financial Markets Analysis ArticleVIX, Oil, BRICS & Sterling's Sell-Appeal - Just when we started highlighting the case for peaking risk appetite in last week's article, oil prices picked up the mantle for the bulls and triggered the sell USD, buy risk trade, partly caused by a plunge in weekly crude oil inventories.


The previously unimaginable break above $74 per barrel has taken place this week, courtesy of growth optimism from better than expected Eurozone PMI figures and the 4th straight monthly increase in US existing home sales. But with currencies such as GBP and CAD solely rallying on the USD-side of the equation, their secular lack of fundamental strength has led to rapid reversals off their highs. FX markets are reluctant to retain any gains in risk currencies (currencies with high positive correlation with equities such as GBP, CAD, AUD and EUR).

Market participants are increasingly aware that intermittent bouts of risk appetite remain largely driven by inventory-related price jumps in oil rather than signs of improved demand or upside economic surprises. Consequentially, energy-related members of major equity indices have dominated the advancers.

Oil's Resistance & VIX Support

But with equities dealing a powerful Friday blow to the bears by hitting fresh highs for the year, we need to take a longer perspective for the general pulse of risk appetite, looking for any red flags lurking in the technical horizon. The charts below show $74.59 on oil and 23.00 on the VIX both mark their respective 200-week moving averages, thereby, serving as the underpinnings of any limitations in prolonged risk appetite. The almost perfectly horizontal shape of the oils 200-week MA manifests a relatively flat trend, which also suggests a mean-reverting trend for the fuel.

These long term measures of volatility and crude are especially vital for gauging the next destination in strengthening appetite, especially after the S&P500 closed the day at 1,026, well above the 1,014 resistance, which is the 38% retracement of the decline from the all time high of October 2007 to the 12-year low of March 2009. And so lets keep a close watch on these two levels in crude and the VIX.

BRICS Meet Mr. Fibonacci

While the Shanghai Composite Index has finally become a household item among individual investors and the media following its 17% slump off its record highs, we first warned of this unsustainable price action on July 29th, when the index fell 5% before peaking 4 days later . The chart in the lower left quadrant below shows how the SSEC peaked at the red horizontal line38% retracement of the decline from the all time high of 2007 to the low of 2008.

The other 3 charts show how the main equity indices of other 3 BRICs members; Brazils Bovespa, Russias Micex and Indias Sensex, each of which saw its 8-9 month rally stall at key Fibonacci retracement levels. Other than respecting major retracement resistance levels, these high profile emerging market members could be at risk of sustaining further blows later in the quarter owing to the declining weekly stochastics, spelling double bearish divergence. The currency impact of these indices is their allocation of risk cash, which is largely mobilized away from USD and JPY. Thus, rising BRICS is increasingly synonymous with strengthening EUR, GBP, AUD, CAD and NZD


Sterling's "Sell Appeal"

While our secular bearish view on the US dollar remains intact, we find more downside in the British pound against USD, and JPY over the medium term (into early Q4). Since pointing out last week the importance for GBPUSD to hold above its 50-day MA in the face of the headwinds from a dovish Bank of England, the pair has increasingly shown extreme signs of toppishness. The 3-hour chart below highlights how the bears are dominating the flow and any bounce towards $1.66 quickly becomes prey for the bears. Whether we get a fersh round of negative UK data, oil backs off its 200-week moving average or/and the VIX further pushes off its 200-week average, GBP will be due to retest $1.6280, before the targetting $1.57.

By Ashraf Laidi
AshrafLaidi.com

Ashraf Laidi is the Chief FX Analyst at CMC Markets NA. This publication is intended to be used for information purposes only and does not constitute investment advice. CMC Markets (US) LLC is registered as a Futures Commission Merchant with the Commodity Futures Trading Commission and is a member of the National Futures Association.

Ashraf Laidi Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules