Updated: Nov 4, 2020
It certainly has been an incredible three days in the markets. As we predicted in our Weekend newsletter: "Markets at Critical Point", it looks like our analysis was spot on. Our Short-Risk Oscillator is sitting in oversold territory, but our Long-Term Oscillator is still hanging on in Neutral. As we have discussed in the past it is normal for our short-term oscillator to be in oversold or overbought conditions for prolonged periods of time. It looks like any bounce we see in the next two days will be short-term in nature.
As we discussed in the last two newsletters, the U.S. Dollar index has broken out in the short-term as a "Risk-Off" event is occurring. The good news is that we believe we are closer to the end of this move than we are to the beginning.
Let's look at some charts.
The S&P500 broke down below the bear flag we had discussed in the last two newsletters. However, it looks like it found support in the 3,235 area, which is where our long-term trend line is. As long as this holds, we could be in for at least a short-term rally in risk. However, if it fails to hold, there is no support until the 3,100 area. This would complete an almost 20% correction in equities (risk). Watch it carefully for a sign of the effects in the Forex Markets.
As we noted over the weekend and again on Monday, it has broken above our descending wedge. It looks like our next resistance is around the 95 level as shown by our longer-term trend line. If 95 gives, and it can tomorrow, then 96 handle is where the following strong resistance is. After that, WHO KNOWS?????
The RBNZ did exactly as we predicted last night and held rates steady. The KIWI pair initially bounced up as we expected and then began to drift down as risk-off sentiment took control. Obviously, it began to fall precipitously in the U.S. session as equities sold off further. We are long this position as it hits support. We currently have a stop loss @ .6520. We are inclined to purchase some more to average down and then lower our SL to .6490.
This cross, AUD/JPY, along with all the other JPY crosses can be pretty good indicators of risk, as we have noted so often in the past. That being said this one has broken a long-term trend line as well as out long-term moving average. Normally, we would want to avoid completely but we are watching because it has been down for 8 straight sessions and the RSI is hitting oversold areas along with our short-term oscillator. This could be ready for a short-term bounce.
The GBP/AUD pair is a fast mover as we have seen over the last three days. It has moved up almost 400 pips in just three sessions. That being said, it is still in the bear flag channel. Also the short-term and long-term moving averages appear to be diverging. Please be careful with this one, but it looks like it may be ready for short around the 1.80-1.81 level.
Have a great night and thank you for reading.