The four “if” clauses for Indices and Stocks: DAX and S&P Forecast
The global stock markets that completed 2018 with strong sales and high volatility began to circulate around the bear market.
SP500 Futures -On the edge of a breakdown.
The index, which completed the year with big sales after the FED interest rate hike, ended the last week with the support it obtained from 200 EMA.
The S & P500, where the 9-year upward trend was tested, will be followed by the level 2300
The index must make daily closings above 2800 to maintain the bullish move.
DAX Futures – Mega Trend Broken
DAX was not successful to hold above the main Moving Averages as SP500 did and broke its 7-year uptrend in November.
DAX is trading below the EMA 100 and EMA 200 of weekly charts. The bearish pressure is likely to remain as long as it breaks above 11.500.
Four Important Issues for Indices:
- Chinese Economy:
- 14 trillion dollars of the Chinese economy is slowing down.
- Retail Sales increased by 8.1% last November, the lowest increase since 2003. Industrial Production for the same month recorded the lowest increase since 2008 with 5.4%
- The bigger problem is : the last incoming PMI data is below 50 – (Announced 49.4) Factory activity fell to the lowest level in the last 3 years. Caixin PMI data was expected to be 50.3, while 49.7 was a new contraction. The slowdown in China, which constitutes 15% of the world economic activity, is not only related to itself but also to other countries. According to the IMF report, China’s impact on global growth between 2013 and 2018 is 50%.
2. Trade Wars:
- Trade wars between the US and China have a big impact on growth.
- In addition, uncertainty does not appeal to stock traders
- When we look at trade volumes: China’s annual imports from the US is 155 billion USD while exports to the US are 505 billion USD. China’s imports from Germany amounted to 96 billion USD annually.
- In short, China is not as advantageous as the US and if China slows down in Germany would be the most affected country.
3. Fed and Rate Hikes
- With a 25-bp increase in December, the FED attracted interest rates between 2.25 and 2.50 and thus began to yield positive real interest rates.
- The FED, which has increased interest rates by 2.25% in the last 3 years, has historically increased to more than 2% and the US has entered a recession. However, the situation is no longer similar.
- FED balance sheet size is 4 trillion USD and 400% larger than it was before the 2008 crisis.
- US 10Y yields are at 2.7% and 1% below the average of the last 20 years.
- Employment and hourly earnings are so strong. Any better time to reduce the balance sheet?
- Powell’s last statement that the FED will not rush for further rate hikes caused a market expectation that Fed will not go to rate hikes. It’s hard to argue that Powell was saying something different than his previous statements.
4. Oil Prices:
- Although low oil prices are good news for consumers, it makes life difficult for energy companies. The index is directly affected by the expectations for energy companies, which constitute 14% of the S & P 500 index.
- The US has become a net exporter of oil in the last quarter of the last year… relieving concerns about supply, while the average cost of shale producers is between 50 and 55 USD.
- As oil prices are correlated with inflation, rising oil prices are good news for global economies.
- The good news is that Crude Oil prices which were under pressure due to global growth concerns and the lack of demand from supply are gaining a bullish momentum.
As a brief:
Although the stocks markets seem to be gaining a positive momentum due to the positive expectation of theUS-China talks and FED president Jerome Powell’s statement on Friday, a persistent bullish move would be difficult as long as the above-mentioned cases remain unsolved.
In 2019, short-term trades would be more attractive for us instead of longer-term trades.
As the S & P 500 Futures remains over 2500, there may be a rise to 2730, as I have shared yesterday. – A cup and handle formation-
In the long term, SP500 will keep its positive momentum as long as it stays above 2300. However, it is worth considering the short-term stock positions instead of long term positions
DAX30 is not worth to buy until it moves above 12500. As seen on the chart, 9400 and 7900 are the targets of the wedge formation.
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DISCLAIMER: This is a technical analysis study, not advice or recommendation to invest money
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