Red October
The last note on SAV Markets called “Testing times for major markets” was published on 15 October and highlighted the risk of relative underperformance of equities against Bonds and Gold
Since then these markets have not shown much dynamism and have been nothing more than a little noisy, until now.
Today the VIX Index is at a 7 week high and has confirmed a short-term break arguing for a test of 38% again. Something that will see a weaker stock market if that target is met.
At the same time US 30 year yield has held the trendline resistance from the 2018 high and has closed back below 1.60%. The short-term risk points to 1.38% and 1.31%
Combining this with the break lower in Oil through $41.36 and a fall in the Copper price, paints a consistently concerning picture across asset markets one week before the election. The short term target on Brent is $39.24 while the medium term chart still argues for the $36 area to be tested. Remember it was a fall in the Oil price at the very end of August that then saw a drop in equities and a bounce in the USD at the start of September, which conveniently brings us to the FX markets:
- The BBDXY index held the same 1st September low last week (1,156). Watch for a bounce and a break through 1,189 which would be important if seen.
- The USD Index (DXY) held the 76.4% Fibonacci retracement against the trend low last week at 92.45 and has started to bounce. Short term trendline resistance is at 93.52 followed by an important pivot at 94.74 (25 Sept high)
- EURJPY: Watch 123.02 which is the double top neckline. A breach of that level would point to 121 (200 day moving average is 121.15 so watch that too)
- GBPJPY: Watch 135.42. Similar to EURJPY, the double top would suggest 133.18 on breach of the former.
- North Asian currencies of KRW and TWD continue to perform well so far which is no different to September. Remember the Covid crisis is much less in most of Asia compared to other parts of the world.
The worst performing equity index at the start of this week happens to be one of the most concerning charts (included below). The German DAX Index is now below important levels that were at 12,386. The setup targets 11,233 which implies 7% down to the levels seen at the lows in August 2019.
SKA