The market was up +4% in HK today, the euro zone seems to follow suite, and it’s all essentially off the back of the Wall St. rally after the euromarket close yesterday. What the… ? Why would optimism in the euro zone somewhere else move markets that much? Is it that traders are playing into the “oversold” scenario and looking into earnings?
It seems like this is a price action story. The HSI tends to move stronger on its open than during its traded day, and a +2% rally in the US? That would have started the HSI at 18 000 or above. Instead it started up and just generally ventured further out, a little bit like one would after having seen heavy thunder quickly dissipate into sunny skies. This eventually culminated in a lot of traders sticking their nose out while Europe opened and pushing another 2% up. Will they be safe?
Again, look at volume. This was probably either circulated trades (same capital in and out rather than new capital). There was no forceful buying at the start of the day, and people are still cautious about just where the market could go, as evidenced by markedly lower volumes today than yesterday or Friday. Keep a keen eye on Greece and Germany this week to watch for further small shocks that could easily eradicate this jump.
Gold is good?
Gold has sustained its jump off 1533 and is now trading around 1660, around its 100 day EMA (20 week, smoother). It seems that the drainout yesterday was enough to clean the books enough to allow further forceful buying to resume, and that the macro picture is not that good. Again, keep in mind that the JPY is making new highs on the euro for sport, the euro keeps going above 1.35 and falling flatly on its face everytime – also for sport, and small currencies are out. The ECB is effectively considering QE and analysts are comparing the EU using leverage for the EFSF akin to it emulating a pufferfish: big and spiky, but also easily pricked. It really couldn’t be a better day for hard currencies.
Calling gold up (1730 looks like a momentary resistance, see my earlier stuff) and HSI down. the volume wasn’t good enough, the trade pattern weak, and there were no substantial news out. How many times have we gotten positively surprised by the eurozone’s “forceful actions” the last 18 months? With that said, now I’ll head for dumplings myself!