The Swing Overview – Week 42
The stock indices had a choppy week, which ended with strong growth. On Thursday, the SP 500 index rose by 1.7%, the Dow Jones Industrial Average by 1.6%, or 534 points, and the NASDAQ by 1.7%. This bullish sentiment was supported by data from the US, which showed easing inflationary pressures and a reduction in jobless claims. A slight decline in the yield on 10-year US Treasuries, which remained below 1.6%, also contributed to the strengthening of equities.
Oil continues to advance, helped by the opening up of economies and easing of activities affected by the coronavirus pandemic. Oil correlates with the Canadian dollar, which has also seen strong gains in recent days.
The US economic data
Unemployment claims fell by 36,000 to 293,000 in the week ending October 9, which was below economists' expectations, who had forecasted a drop to 320,000. Thus, for the first time since the pandemic had begun, the number of jobless claims fell below 300,000. These figures indicate strong demand for labor and confirm that the slower employment growth is due to a shortage of workers rather than a weakening in labor demand.
Given the second straight weekly decline, which the Labor Department reported on Thursday, unemployment claims are now in the range generally associated with healthy labor market conditions. However, the labor market is facing challenges related to labor and raw material shortages that are fueling inflation.
The September PPI producer price index rose 0.5%, slower than the expected 0.6% increase. Excluding the volatile components of food, energy, and business services, producer prices increased 0.1% last month after rising 0.3% in August. In the twelve months to September, the core PPI rose 5.9% after accelerating 6.3% in August.
“With manufacturers struggling with supply chain issues and labor shortages, it's too early to call the relatively low growth in the core PPI a harbinger of a new trend,“ said Will Compernolle, chief economist at FHN Financial in New York.
The US stocks have strengthened
The SP 500 index rose on Thursday on the back of a sharp rise in semiconductor stocks and of strong quarterly results from major Wall Street banks such as Bank of America, Wells Fargo, Morgan Stanley, and Citigroup.
Shares of technology companies were pushed higher by a rally in shares of semiconductor firms following upbeat quarterly results from Taiwan Semiconductor, which reported better-than-expected third-quarter results and confirmed the growing demand for its products and services.
Thus, a strong bullish candle formed on the SP 500 index towards the end of the week and the price is once again above the SMA 100 average (blue line on the daily chart), which tends to be very strong support. At the same time, a higher low has formed on the daily chart, which may indicate that the previous declines were only a temporary correction.
Figure 1: The SP 500 index on daily and 4H chart
According to the daily chart, the nearest resistance is in the area around 4,480 The current nearest resistance is in the area around 4,480. The closest support according to the daily chart is then 4,330. According to the 4H chart, the closest support is then 4 427.
German DAX index
The German DAX index has also posted strong gains in the last two sessions. The price has currently reached the descending upper trend line, which marks resistance. There is also a coincidence with the horizontal resistance from the H4 chart, which is priced at around 15,500.
Figure 2: The DAX on H4 and daily chart
Significant resistance on the daily chart is around 15,785. The nearest support is then 15 262. The EMA 50 and SMA 100 averages on the H4 chart can also be considered as support. The Dax got above these averages on the H4 chart last week, indicating a bullish mood. However, the bearish signal of the so-called death cross, which is a situation where the EMA 50 is below the SMA 100, is still valid on the daily chart.
Oil is at its highest price since October 2018
Oil prices rose 1% on Thursday after top oil producer Saudi Arabia rejected calls for additional supply from OPEC+ countries. The cancellation of production cuts by the group protects the oil market from the wild price swings seen in the natural gas and coal markets.
Brent crude futures hit $84 a barrel, a 1% gain and the highest price since October 2018. Futures contracts for U.S. West Texas Intermediate (WTI) crude ended up 87 cents at $81.31 a barrel, marking another seven-year closing high.
In its monthly report, the IEA raised its estimate of global oil demand growth in 2022 by 210,000 barrels per day and now expects total oil demand in 2022 to reach 99.6 million barrels per day, slightly above pre-pandemic levels.
U.S. shale producers have been reluctant to invest in increasing production after years of weak returns, leaving U.S. production far behind the late 2019 record of nearly 13 million barrels per day. On Wednesday, the EIA said production will hit 11.7 million barrels a day in 2022.
Figure 3: Brent crude oil on weekly and H4 chart
The charts show us the current uptrend in Brent crude oil. From the weekly chart, we can see that crude oil is approaching resistance, which is at around $87.216. According to the H4 chart, the current resistance is at around $85. Support is at $82.728.
Oil's rise is dragged by the Canadian dollar
Since oil is often correlated with the Canadian dollar, it is not such a surprise that the Canadian dollar is strengthening significantly. We can see this in the CADJPY pair.
Figure 4: The CADJPY on daily chart and correlation with oil on the H4 chart
Oil (orange line on the chart on the left) has added approximately 18% since mid-September, while the CADJPY (blue line on the chart on the left) has risen 6%. On the CADJPY pair, the nearest resistance on the daily chart, which is in a band around 91.00, has been broken and is now becoming support. The pair is currently in strong growth, so it is more beneficial to look for long trades. The next resistances where a reaction can be expected may then be the whole numbers.
The British pound has also strengthened
A strong downtrend is seen on the British pound according to the daily chart. But in the past week, the pound has started to strengthen and a bullish signal has appeared on the H4 chart which could indicate developments in the coming days. However, this is contrasted on the daily chart by the bearish pin bar that formed on Thursday.
Figure 5: The GBPUSD on daily and 4H chart
The price is currently at support, which according to the H4 chart is in the band around 1.3664. The moving average on the H4 chart can then be considered as the next support. The nearest resistance is 1.3748.