Market News & Analysis
DAX: Stocks rally fatigued after mixed trade headlines
Fawad Razaqzada November 21, 2019 9:57 PM
A growing number of analysts, ourselves included, have long waited for a correction in the stock markets. But the wait must continue as conflicting signals regarding the US-China trade deal prevents market participants from taking bold directional positions, with most speculators happy to remain nimble in this market environment. Still, a short-term retracement may be on the cards judging by this week’s price action.
The markets have been propped up by optimism that the US and China will soon end their trade dispute, with the rally finding additional fuel from major central banks’ ultra-loose monetary policy stances. However, over the last couple of days, one or two reports have emerged that said the two sides are not as close to agreeing a “Phase One” trade deal as the markets had anticipated. Indeed, Reuters reported yesterday that the deal may not be completed by the conclusion of this year after all. As a result, stocks slumped, although Washington later tried to ease concerns by suggesting – once again – that “progress is being made.” Today, a report by South China Morning Post said the US may delay the December 15th tariffs, if a deal is not reached by then.
While this helped the indices to come off their lows, the bulls were hesitant to step in meaningfully. The markets are increasingly getting fed up with the rhetoric. Investors now want to see action as we head to year end. In any case, we continue to think that much of the optimism is already priced in given the sharp gains on Wall Street over the past several weeks. So, if the two sides were to agree on some sort of a phase one deal eventually then the potential upside move for stocks could be limited anyway.
Source: Trading View and City Index.
But tight now, the key question is have we seen a short-term top? Well at the start of this week, it looked like the melt up would continue unabated as a number of leading indices such as Germany’s DAX broke out. However, that turned out to be a false break, thanks to profit-taking amid mixed signals regarding the US-China trade situation. The fact that the index went back lower, trapping the breakout bulls, means that the bears may finally have a case here. At the time of writing, the DAX was testing 13140 – the former support area which broke down following that false breakout move earlier in the week. If the bears are to have a real crack at this, they must defend this level on a daily closing basis today. However a close above here would probably end the bearish bias.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.