Bitcoin as a word has been introduced into our lives but many traders still don’t know exactly what it is. Bitcoin is an open-source, peer-to-peer, digital decentralized cryptocurrency (no need for a central governing authority or a central bank or ministry of finance). It is powered by blockchain technology, released and circulated around almost for free, by regular uses in a process called “bitcoin mining”. It is affected very little by national borders or restrictions imposed by banks and governments.

JFDResearch news Bitcoin Gold

Bitcoin Gold Is Entering the Game
Since the beginning of the year, BTC/USD appreciated more than 500%, climbing above 6000. On Tuesday, October 24th, bitcoin plunged more than 6.5% after the split in the cryptocurrency’s blockchain network that formed Bitcoin gold, however, it covered this loss in the next two trading days. In July, there was another fork (an operation whereby a process creates a copy of itself) of the bitcoin: Bitcoin cash. This bitcoin will be released soon to all the existing bitcoin users.

Both new cryptocurrencies, Bitcoin cash (BCH) and Bitcoin gold (BTG) have been created through a hard fork of the bitcoin blockchain. The process to create Bitcoin gold began in July based on bitcoin blockchain with restructured and new rules, and finally, it was created at block 491,407 on the original blockchain. The new cryptocurrency faced attacks on all sides resulting in a plunge over 70% until now. The Bitcoin gold posted a high at $524.88 and then started a bearish tendency, hitting the $122.26 price level on October 26th. A few hours after the bitcoin cash put into effect, the cyber security announced that they confronted a massive DDoS attack on their cloud site (distributed denial-of-service (DDoS) attack is an attempt to make a machine or network resource unavailable to its intended users).

BitcoinGold30102017

Aim of Bitcoin Gold: “Make bitcoin decentralized again”
The producers of bitcoin, instead of scaling bitcoin to support more users, decided to create a different cryptocurrency. Bitcoin gold aims to change how bitcoin mining works, thus the most powerful mining machines (called ASICs) can no longer be used as these machines are owned by a few large companies. The developers want the consumer hardware to be widely available for more people worldwide, as an opportunity to participate in the mining process.

What Happened When Bitcoin Cash Was Created?
As mentioned above, a similar fork happened in July to create the bitcoin cash. BTC/USD has two big gaps to the upside in this period. For the first month, bitcoin cash was falling steadily with two big jumps to the upside that topped at $914.45 on August 19th. Since then it has a sloping channel to the downside. On the day bitcoin gold was created, bitcoin cash ended the day almost $11.00 higher, from $315.90 to $326.89 with a high at $340.45. 

Fed is anticipating to approve another fund rate rise by another quarter point on Wednesday, even though the economy is not at a peak.

The Czech National Bank (CNB) announced in an extraordinary meeting on the 6th of April 2017, that the central bank’s board has voted to remove the over three years currency cap of the Czech koruna (CZK) against the euro (EUR), which was set near $27.00, as the inflation rate returned to CNB’s target range.

Right after the announcement on the central bank’s website, the koruna experienced sharp fluctuations on both sides before extending its appreciation. The EUR/CZK pair is currently in a free fall, marking the biggest one-day run since October 2011, shaking the forex market. As we speak, the currency pair is being traded at 26.60.

As we mentioned in our article published earlier this year “Clock Started to Tick on EUR/CZK Currency Floor”, in November 2013 the CNB, inspired by the Swiss National Bank (SNB), decided to use the koruna exchange rate as an additional instrument for easing monetary conditions to prevent deflation in the economy, after interest rates plummeted close to zero percent in late 2012. The peg was initially agreed to hold until the second quarter of 2017. The foreign exchange interventions aimed to weaken the Czech koruna in order to push inflation in the central bank’s target range of 1% to 3%, in a similar way to using interest rate cuts for monetary easing. An excessive appreciation of the currency could put the competitiveness of the Czech economy at risk, something that CNB wanted to avoid. It is worth mentioning that the Czech Central Bank itself is the Koruna’s issuer, thus it is able to print an unlimited amount of money for an unspecified period of time to buy euros with Czech koruna and prevent overvaluing of its domestic currency.

Czech060417m

Even though the central bank has not until this point indicated any expected changes, after the Czech headline inflation rate accelerated to 2% in December, the dilemma whether or not CNB will remove or lower the currency floor to alter the Czech koruna exchange rate versus the euro, became a topic of discussion amongst investors. Inflation, in fact, jumped to 2.5% in February, prompting the central bank to remove completely the foreign exchange commitment. However, they left the two-week repo rate at 0.05%, the discount rate at 0.05% and the Lombard rate at 0.25%.

The market needs some time to digest the unexpected CNB’s move while the bank states that it is ready to use its instruments to mitigate the potential excessive exchange rate fluctuations.

EURCZKWeekly060417m

In November 2013, it is well known that the Czech National Bank (CNB) decided to use the Czech koruna exchange rate as an additional instrument for easing monetary conditions, after interest rates plummeted close to zero percent in late 2012. The currency floor for the EUR/CZK was set around 27.00 with plans to hold this level until the second quarter of 2017. The foreign exchange interventions aimed to weaken the Czech koruna (CZK) in order to prevent the economy from deflation and stimulate the industry, similarly to monetary easing using interest rate cuts. An excessive appreciation of the currency could put the competitiveness of the Czech economy at risk, something that CNB wanted to avoid. It is worth mentioning that the Czech Central Bank itself is the Koruna’s issuer, thus it is able to print an unlimited amount of money for an unspecified period of time to buy euros with Czech koruna and prevent overvalue of its domestic currency.

120117int

The Czech Central Bank did not indicate any change in its plans before the beginning of the second half of 2017. However, the latest data released shows the Czech headline inflation rate in December accelerated sharply towards the central bank’s 2% target, thus bringing to the table the dilemma whether or not CNB will remove or lower the currency floor to lift the Czech koruna exchange rate versus the euro beforehand. This has also been indicated from the latest Czech government bonds auction.

infl120117

During an auction of Czech government bonds, yields fell sharply in the negative range, as foreign investors were willing to buy Czech bonds on a large scale. Since the bonds are issued on Czech koruna, when the currency will be revalued, the bonds will have significant exchange rate gains, given a fall of the EUR/CZK value. CNB bought approximately 18.5 billion of Euros from November 2013 to January 2016, thus a removal of the floor is likely to cause a subsequent appreciation of the koruna.

The increased speculation from market participants over the removal of the currency floor which will elevate the koruna could potentially lift the demand for the currency and CNB would need to intervene further to underpin EUR/CZK from falling below 27.00. The removal of the currency floor would mean CNB’s heavy interventions would be stopped. Thus, the Euro is likely to appreciate benefiting many traders from the EUR/CZK fall, as well as investors being able to hold on their portfolios bonds or other securities issued in Czech koruna.

The policymakers are probably inspired to use this tool from the Swiss National Bank that set a currency floor for the EUR/CHF pair. Therefore, the removal of such peg leads traders to speculate a new “Franc shock”. When Swiss National Bank (SNB) canceled the fixed exchange rate in January 2015, the Swiss franc (CHF) plunged almost 20%.  Since the Central Bank does not want to repeat the same mistakes of the Swiss National Bank, they may handle the situation differently. Probably by lowering the currency floor gradually.

The Australian share market has rebounded strongly on today’s opening following the extremely high volatility and uncertainty in the markets due to the U.S. Presidential Elections result. After Donald Trump was announced officially as the next president of the Unites States, both the forex and stock markets experienced a tremendous shock.

The AUD/USD pair surged at 0.778, almost a 7-month high on the back of the strong sell-off of the dollar as traders panicked after Trump’s election. However, right after the pair fall vigorously at 0.7580 and rebounded back to 0.7670 upon closing of the U.S. session. The next level to watch is the 0.7730 support barrier if the price continues its bullish attitude. The RSI technical indicator seems to be in agreement with this scenario as it is sloping upwards.

AUDUSDH4101116

The Australian share market also posted historical gains. The ASX/S&P200 recorded four consecutive winning days adding near 220 points since Friday’s closing level. While the U.S. elections were about to end in favour of the Republican party, the Australian stock index created a spike down to 5,040 and bounced back to 5,360 where it is currently traded. In other words, it jumped 320 points, or 6% increase, in a two-day rally. Technically, the index may continue its upward move until the 100-daily SMA which overlaps with the 5,400 strong resistance level.

AUS200CashDaily101116

The rally in stocks was driven mainly by mining and construction stocks, as Trump is expected to make fundamental changes in the trade agreements with China and Mexico, like adding tariffs of 45% and 35% to Chinese and Mexican goods respectively, according to his campaign promises, favouring Australian products. Moreover, the iron ore and the copper prices soared, two very significant metals for the Australian economy, as they lie among its top exports products. More specifically, iron ore is a leading product of Australian exports, holding more than 25% of the total exports. Thus its 5% rise up to $71 a ton, reaching its highest level since January, led the stocks to add severe gains. The copper, a key construction material, also jumped 4% to 16-month high as Trump promised large increase in infrastructure spending and creation of jobs, which will raise its demand. 

The Australian dollar, relative to the three big currencies (USD, EUR and GBP), have continued to recover. After a long secular decline over previous years, the Australian dollar managed to recover some ground and over the last four months it recorded more than 7% versus the U.S. dollar, the euro, and the pound showing some positive signs that it could sustain those gains. Despite the low-environment of volatility – we haven’t seen the AUD record more than 4% of gains in a month versus the euro and U.S. dollar – we expect the next few months to be more volatile as the Federal Reserve is expected to increase its rates at its last meeting while the Reserve Bank of Australia (RBA) is expected to lower its cash rate in the near term.

The Bank of England has a strong economy that many economists believe could tighten the monetary policy until now. Fed raised its interest rate for the first time in nearly a decade and many believed that BoE will follow the tightening process. In the following article, we will go through the British economy, the current monetary policy and the impact that had by Fed’s rate hike, as well as the consequences of the looming Brexit Referendum.

GDP – What Drives the UK Economy?
The U.K. economy advanced at an annual pace of 2.2 percent in 2015, lower than the year before, that it had expanded by 3.0 percent. It is noteworthy that during the last three years, the annual expansion of the domestic economy fell below 2 percent only once in the first quarter of 2013. Even though the U.K. economy expands at a healthy pace and ended last year with a substantial rate of growth, the pace of expansion was becoming less buoyant through the year. The first quarter the economy expanded by 2.6 percent year-over-year (2.4 percent in Q2 and 2.2 percent in Q3) but slowed gradually to 2.1 percent the last quarter of the year reflecting a weakness across the country’s borders.

UK Annual GDP12042016

The growth of the economy is continuously driven by the service sector demand that accounts for more than 75 percent of the total GDP. The services sector faced a recession during the last second half of 2012 that dragged down the growth of the economy. Following the strong weakness, the services sector expanded rapidly boosting economic growth that reached 2.8 percent the three months to June succeeding quarters of expansion less than 1.5%. In the middle of 2014, the services sector started to decline again at a slower pace this time. At this stage, the GDP continued to grow at a robust pace for a year but it couldn’t be supported more and started slowing down in the first quarter of 2015 and it’s currently stands below 2.0%. In my opinion, figures around 2% and above are satisfactory for the bank to tighten the monetary policy.

UK Trade Deficit the Highest since Records Began! 
The services sector was not the only reason behind GDP’s drop. The weakening manufacturing sector and the sharp decline in construction activity, as well as the ballooned trade deficit enfeebled growth. The government’s current account deficit widened to a record high the last quarter 2015. For 2015 as a whole, the trade deficit ballooned to £96.2 billion or 5.2% of annual GDP, the highest since records began in 1948. It’s worth to mention that since Q3 of 1998 the current account has never turned to surplus. Over the last fifteen years, the UK has negative trade balance despite its ups and downs during this period. The Chancellor of Exchequer set as a goal to narrow the trade deficit and even turn it to surplus in 2015, but the unexpected recent global instability and the high vulnerability of the plans was a bad combination that didn’t work out, driving economists to conclude that we will not see a positive trade balance soon.

UK Gov Balance 12042016 2

Over the half of the UK exports (near 55 percent) are going to Europe, however, the strong sterling versus the euro does not benefit them. From mid-2013 to 2015 the single currency depreciated more than 20 percent against the sterling and the exports slashed severely the second half of 2015 following a rally in the first half.

If Britain votes to stay in the European Union, an improvement in 19-nation union’s economic and financial conditions and the stronger growth prospects in advanced economies, are likely to bolster the demand for U.K. exports, and therefore, bolster the pace of the economic expansion.

In 2015, the economy expanded on an annual average by 2.2%. According to the International Monetary Fund (IMF), the GDP will continue to advance at an average pace of 2.2% in 2016 and will decelerate slightly to 2.1% in the long-term future of 2020.

AnnualGDP12042016

So, the overall conclusion from the UK GDP is that the economy expands at a healthy pace and at a sufficient rate for the central bank to raise interest rates! But there are some clouds over this issue. According to the statements of Mark Carney the Governor of Bank of England, the global slowdown, the low oil prices and a more bold issue for UK, the Brexit may hold back the growth in the near future. Although, as the majority of the UK exports are going to Europe, if UK leaves the European Union is very likely this number to decrease due to the taxes must be paid from the inside-European-Union receivers.

BoE Fights For Inflation 2 Percent Target
The country’s inflation outlook remained gloomy in 2015, keeping back the BoE policymakers from raising the interest rates. At the last quarter of 2013, the inflation was around central bank’s 2 percent target. The year of 2014 started with inflation to be slightly below 2 percent and above 1.5 percent. However, in June, it started to decline and ended up to surround zero at the beginning of 2015. The country has been fighting deflation for the whole last year, with external headwinds to burden the situation. At the last month of 2015, the consumer prices picked up by 0.2 percent and by 0.3 percent the first two months of 2016 raising optimism that inflation is on the way towards central bank’s target albeit it’s still very low. In the bigger picture, inflation is on a slow but steady pace of increase.

Inflation 12042016

The IMF forecasted that inflation rate will rise to 1.5 percent until the end of this year. More specifically, the fund organization expects the consumer prices growth to remain subdued in the beginning of 2016, as it happened until now, and to pick-up in the second half of the year while the IMF projected that inflation is set to reach BoE’s 2 percent target in 2020.

Annual Inflation 12042016

Even though, the BoE is likely to hike its rates even if inflation is below central bank’s target as I will not expect it to reach 2 percent soon. Moreover, I would expect the IMF to downgrade its forecasts in the next publications and inflation to remain below 1 percent longer due to the financial instability caused by the political turmoil in Europe and the Brexit concerns. 

UK Labour Market Rocks!
The headline indicator of the labour market, the unemployment rate fell to 5.1 percent the lowest since October 2005, which means the best situation has been the last 10 years! The three months to November the unemployment was at a record low level. After it peaked at 8.5% the three months to November 2011, the jobless rate has been falling at a steady pace and remained stable at 5.1% the last two months. On the top of that, the employment rate, the proportion of people aged from 16 to 64 who are working, was 74 percent in October, the highest since records began in 1971.

Unemployment 12042016

The average weekly earnings including bonus increased over 2.5 percent on average in 2015, the steepest pace of growth since 2011. The average weekly earnings suffered a significant slowdown in 2014 where it even turned to negative growth. Although, the wages were increasing and reached a growth more than 3 percent in 2015. Despite that later the growth slowed down, on average it remained above 2 percent. Thus, as the unemployment rate was decreasing the wage growth was peaking up, a strong sign of recovery. It’s worth to mention that both of them remained at the same level in January 2016.

Wage Earnings 12042016

The labour sector experienced some clouds during last year due to the slight increase of the claimant count change. The number of people claiming unemployment benefits was continually decreasing by big numbers, however, in the second quarter of 2015, the unemployment benefits started to decrease by small numbers and even to increase in the third quarter, indicating lack of expansion.  Fortunately, the figures returned to their normal levels the last two months of the year, and continued that way in January and February, totaling a decrease of 50 thousand to the number of people claiming jobless benefits.

The bottom line is that the UK labour market is very strong, it’s currently in the best situation of the last years and it’s doubtful if it can become even better.

But Where Does the Current Monetary Policy Currently Stand?
In September 2008, the central bank started a series of consecutive small rate cuts that led the benchmark interest rate from 5 percent to 0.5 percent in seven months. Since then, the BoE monetary policy committee votes monthly to keep the repo rate at the record low of 0.5 percent but there were notable changes in the policymakers’ voting pattern.

During this period when the benchmark interest rates were on hold, and more specifically in September 2009, the central bank started an Asset Purchase Facility (APF) to buy high-quality assets. Basically, this means that the bank creates new money electronically to buy financial assets, like government bonds. This process aims to directly increase private sector spending in the economy and return inflation to target. At the beginning, the amount of purchased assets was 65 billion pounds and reached the amount 375 billion in mid-2012 where it stands until now.

BoEpolicy12042016

During the last quarter of 2015, economists believed that the committee would vote for a rate hike, however, the low inflation in combination with the global risks prevented the bank from such a move. Only one of the nine policymakers was voting for a rate hike for the last five months of 2015, who stopped in January after Fed raised its interest rates.

The most probable scenario, without taking into account a specific timeframe, is that the Bank of England will someday start raising interest rates gradually until they reach a normal level that would represent the potency of the economy. The gradual rate hike is expected to take a significant amount of time and it will not be a surprise if the bank starts raising interest rates with low inflation. In such a case, it will raise rates just a few times at a very slow pace and then, holds off on further action, while it assesses economic expansion and consumer price growth. Remember that the UK economy is heavily based on consumer consumption.

It is worth noting that the bank’s monetary policy objective is to deliver price stability, raise inflation back to 2 percent supporting growth and employment.

Has Fed Rate Hike Action put BoE Under Pressure?
Going a little back, the second half of 2015, most of the news headlines were about whether Fed will raise its main interest rate. Many on and offs were disturbing the market, until the last months of 2015 when Fed finally decided to raise the interest rates at 0.5 percent from the record low has ever been at a quarter basis point.

At that point, the question among the market participants was if the Bank of England will follow Fed’s tightening policy. From my judgment, this question answered a while later when the market headlines turned to the question if Fed did the right choice. The doubts if the U.S. economy was ready for such a move made the Bank of England policymakers to be more hesitant to keep a hawkish stance and the right next month at the policy meeting, even the one policymaker that was voted for a rate hike for a long time entered the rest of the team, who votes to leave the monetary policy on hold.

Voting Pattern 14042016

What Will Brexit Bring in the Market?
One of the most discussed issue in UK and Europe in general, that will continue to dominate the markets until the EU referendum takes place. On 23rd of June, 2016, British will vote if they want UK to stay in the European Union or not. A possible result supporting Brexit, UK to not be a part of the European Union anymore, is already started to affect the market, as the polls show that a big part of the voters want UK to leave the 19-nation union. The pound is being depreciated against the major currencies and the confidence among consumers and businesses is shaken.

If the country decides to exit the Union, it will be a big shock in the market! It’s difficult to predict the exact consequences of such development, as it’s something that never happened again in the past. What is certainly true to happen is the market to be fulfilled by uncertainty.

The pound and the UK economy will be heavily affected. As the Bank of England’s Governor said, Britain leaving the European Union will be the “biggest domestic risk to financial stability”, however, remaining in the European Union, also carries risks. The European Union reinforced the dynamism of the British economy and correspondingly its ability to grow without generating risks to the bank's primary objectives of monetary and financial stability.

Brexit is likely to cause a serious drop in the exchange value of the pound and push some firms to move abroad. The central bank has to be very careful and decisive to keep the monetary and financial stability intact as well as to keep inflation rate near, or as near as possible, to its target. However, another view suggests that in the long-term, UK can be considered as safe-haven for new investments. The Brexit could be the beginning of the collapse of the European Union project, and then the pound would be more attractive than the euro.

Regarding the labour market, the British firms will have fewer candidates to choose from, as it will not be easy for the companies to employ workers outside of Britain.  But, on the other side, the labour market that is already strong would become stronger. Less unemployment, which means higher wage growth to attract employees. And in turn, higher wages mean increased consumer spending and accelerated ascent of the GDP.

Pound’s value Compared to Euro and U.S. Dollar
During the global financial crisis in 2008, the sterling collapsed versus both the dollar and the euro as it declined by 34%. Both the GPB/USD and EUR/USD pairs were traded sideways until mid-2013 when both started to gain ground and rose around 13%. Which means that both pairs rebounded from the financial crisis lows.

However, after the reflection point, in the mid-2014 they started to diverge. The pound continued to get stronger against the euro and covered almost all of its earlier losses while the pound was plunging versus the dollar.

Since the second quarter of 2015, the two pairs started to perform similarly again and more specifically pound is being depreciated versus both the dollar and the euro. Note that pound versus the dollar is currently being traded near the record low levels has been during the crisis.

14042016 1

EUR/GBP – Technical Outlook
Looking on the monthly chart, we see that the pair is traded in a clear downtrend, creating lower highs and lower lows. The EUR/GBP pair peaked at 0.9800 in December 2008, when the pound plunged following the global financial crisis. Later the pound entered a downtrend against the euro and the EUR/GBP pair made its last bottom, so far, at 0.6930, recording losses of 29.3%.

After the pair found support at the 0.6930 level, it recovered sharply approximately 16% up, it recorded 4 consecutive winning months and is already 2% up for the first week of April. Thus, it’s obvious that the pair is being traded in a sloping channel and it’s currently in a retracement that will test the upper line of the sloping channel. A break above it, it will be a turning point and a trend reversal for the pair.

EURGBPMonthly07042016

Going down to a lower timeframe that shows the medium-term outlook, we see that the price is moving above the significant support of 0.7500 and 0.7780. At the same time, the price is trading above all of the 50, 100 and the 200-SMAs. Following this aggressive rally, the bulls are under strong momentum and now they threaten to break above the long-term descending trendline which started back in early 2009.

A clear break above the trendline, it would signal a trend reversal, however, I will need some additional confirmation for the bias to turn positive. This confirmation may be a daily or a weekly close above the upper line of the channel. Considering the strong rally we have seen from 0.6930 where the prices gained 16%, I would expect the long traders to start locking their profits and slow down the bullish momentum. Most possible scenario and most ideal position for the bulls to exit their trades would be near the trendline, where, at the same time, I believe, the short players will enter the market to trade the continuation of the downtrend.

Thus, having the above in mind, the level to watch for the next week, will be 0.8170, where a big battle will take place since I consider this level as a turning point for the pair. Therefore, a break above the trendline and the 0.8170 would open the way for 0.8400. At that level, I would expect the first pullback to test the trendline and 0.8170 level from the upside and then the pair to continue rising.

On the other hand, if the bears win the battle at the area around 0.8170, they could push the price down, and the first two obstacles to watch will be 0.7780 and 0.7500 which will mark the continuation of the downtrend. Also, to confirm the continuation to the downtrend, I would need a break below the 200-SMA roughly around 0.7900.

EURGBPWeekly07042016

Conclusion: Will the Bank of England raise interest rates in 2016?
The Bank of England is likely to raise interest rates in this year but not soon. I wouldn’t expect the Bank of England to raise interest rates before the UK referendum. After the referendum takes place on 23rd of June, the central bank will wait for a while for the markets to calm down and accept the result, whatever it will be, and then start considering when is the right time for a rate hike. If the economic conditions continue to be like now with improved inflation rate and slightly better GDP growth, I can see Bank of England doing its first rate hike by a quarter basis point in the last quarter of 2016 or in the first half of 2017. As I said before, the inflation rate will not necessarily reach bank’s 2% target but, in my opinion, it should be in a more stable condition near 1% before the bank raise its interest rates.

Wednesday, 02.03.2016, 12:54

WTI and Brent Crude Oil Review

Written by

We have seen oil plummet from over $100 per barrel to nearly $30 in the second half of 2014. U.S. West Texas Intermediate (WTI) Crude Oil and the U.K. Brent Crude Oil have gotten crushed through the end of 2014. Currently, the price of WTI crude oil hovers at a seven-year low at around $35 a barrel while the price of Brent crude oil is moving slightly below $40 per barrel.

Thursday, 11.02.2016, 12:42

Russia Economic Review and Forecasts

Written by

The Russian ruble (RUB) was sold throughout 2015 following geopolitical tensions with Turkey, the collapse in oil prices, related economic sanctions from Western countries, and a generally poor economic performance. As 2016 gets under way, the outlook for Russia’s economy - the fifth largest in the world - remains weak, while the country is struggling with recession, as inflation is rising more than 15 percent.

Tuesday, 15.12.2015, 06:15

S&P 500 Double Top?

Written by

The S&P 500 index fully recovered after falling in August to as low as 1,835 when fears of a slowdown in China shocked the global markets. The index experienced its first technical correction during the month of August as it fell more than 6% from its all-time high. This is the biggest fall since September 2011 where the index faced a -7.20% drop. Even though the index recovered above the psychological level of 2,000 it went negative on the year-to-date (YTD) at 1.85% and in the past one year period is down about 0.60%. For the third quarter, the index finished with a total return of -6.90%.

SP Annual

However, the main concern is that the index return is coming from a few of its stocks. Among the 10 most valuable stocks in the market which are up roughly 20% as a group this year versus a -3% for the rest of the stocks. For example, shares of Amazon.com (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), Facebook (NASDAQ: FB) and Alphabet (NASDAQ: GOOG) have led the way, while Exxon Mobil (NYSE: XOM) and Berkshire Hathaway (NYSE; BRK) have been underperformed. Thus, we should examine this more closely as a widening of the stocks between the market's best performers and the rest of the market could raise some worries for the whole performance of the index in the near term.

SPStocks2

Technically, the index is struggling to extend the bullish rally above the all-time high of 2,135 following the aggressive buy from the 1,835 in mid-August. The recent sell-off in mid-November saw the key zone of 2,000 – 2,023 once again provide solid support for the index. Therefore, the key zone which will have a significant impact on the direction of the index will be the 2,000 – 2,023 zone. The recent rally above the aforementioned zone has been extremely aggressive and if we see a close above the key 2,135 or the all-time high, would be a strong bullish signal.

On the other side of the coin, a break below the aforementioned zone could be seen as a double top reversal, which is a bearish reversal pattern, and therefore, we should expect a further pressure on the bottom of the pattern or the neckline, around 1,835 and slightly below the 23.6% Fibonacci retracement level.

US500CashWeekly121015

 

Page 1 of 2
Please wait
Loading...
Margin Trading is high risk and not suitable for all. Please ensure that you fully understand the risks involved.