Since breaking out of its 7-month range, copper has developed a bullish trend structure and is showing signs of a potential bull-flag above the breakout level. With the 20-day average also supporting, we’re looking for prices to eventually break higher after its period of consolidation.
DXY looks set to challenge the 2018 peak, although price action near-term could be stretched. Beyond February seasonality points lower, so how it reacts around the highs could be key as we head into March.
Santa’s rally took another slap to the face yesterday with the SP&500 closing firmly beneath the 2018 low. Currently trading -9.2% lower amid its worst month since February, the odds of a turnaround look bleak to say the least.
We’ve been tracking the top of the S&P500 for a while and, whilst it currently lags the ferocity of the 1987 top, it is giving the 2007 and 2000 bears a ‘run for their money’. If this does turn out to be a mere correction, it’s certainly an unpleasant one, especially given the time of year.
We see a potential topping pattern on USD/JPY which is eerily similar to one last December which resulted in a 700-pip decline. So, with a highly anticipated FOMC meeting just hours away, it’s worth keeping an eye on which way this one breaks.
The weekly chart shows that USD/JPY bulls are struggling to overcome the June 2015 trendline, which could be part of a multi-year pattern. We highlighted in a recent video that volatility is brewing within larger coiling formations and continue to think this is the case. If USD/PY is within the process of topping out, the larger triangle leaves potential for a 4% decline without breaking out of it. And, whilst this may be too large a timeframe to trade for most, it provides a starting point before drilling down to the lower timeframes.
Among the large US indices, the Nasdaq 100 has fallen the furthest from its highs. However, we’re starting to see signs that the tech benchmark could be oversold.
We can see on the weekly chart that, having fallen over 15% from its highs, the Nasdaq is now within its second worst drawdown since the Nasdaq bubble burst. Interestingly, the prior two times it has fallen 15% or more post-bubble, the index has posted a solid recovery. Whilst this may not provide a solid buy signal within its own right, it does provide food for thought and send a warning to bears, especially given the clues on the daily chart.
It wouldn’t be a market correction without comparisons to prior market tops. So, today we compare the S&P500 price action to its three previous bear markets.
The following chart rebases the S&P500 from previous market tops, which enables us to compare these historic periods to see if current price action tracks it in real-time. So far the decline from the 2018 highs is eerily similar to the 1987 and 2007 tops, and may be fast approaching a stage where it needs to carve out its own route.
As of yesterdays close, the S&P500 has shed -9.36% for the month of October. This puts it on track for its tenth most bearish month using data since 1960. Of course, with two trading days left in the month it could still make a comeback, but we don’t see the harm in getting ahead of the game and checking how things panned out for the other nine months.
* Disclaimer: Any opinions, news, research, analysis, prices, trade recommendations or other information contained on this report is provided as general market commentary, and does not constitute investment advice. Matt Simpson will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.