Risk trades dominated US stock markets
BY Janne Muta|March 30, 2023
Yesterday all the US equity indices rallied. The move higher was supported by a decrease in global banking worries. The S&P 500 added 1.4%, while the Dow Jones Industrial Average increased by 1%. The Nasdaq Composite, which is heavily influenced by tech stocks, rose 1.8%. All sectors of the S&P 500 ended up with gains with the real estate and technology sectors rallying the most, 2.38% and 2.10% respectively.
The fact that technology and growth stocks were the ones that led the charge higher, indicates that investors are again willing to accept risk. The shares of Micron Technology jumped 7.2% after the chip maker said industry fundamentals were improving. As another sign of improved sentiment, the Cboe Volatility Index, or VIX, continued to trade lower. The 10-year Treasury yield edged lower to 3.565% from 3.566%. While yields didn’t support the dollar the quarter-end flows may have also supported USDJPY. The pair rallied 1.5%.
USOIL declined yesterday, creating a momentum loss candle after rallying higher for a couple of days. Weakness was reportedly due to weak US demand for distillates. Despite this, US crude inventories dropped by 7.5 million barrels last week, even though analysts had predicted an increase of 0.09 million barrels. At the same time, Saudi Arabia suggested that the oil cartel should maintain a stable supply in 2023 due to the banking turmoil's recent impact on the fragile global oil demand recovery.
DJ trends higher above 32 668
DJ trends higher above 32 668. The market has reached and breached the 32 767 level we focused on yesterday and trades now near to a resistance level created on Feb 22. Whenever a market (after a strong move higher) trades at a resistance level the risk of retracements increases so trade carefully. However, as long as the upside momentum remains intact we should focus on the long side. The market will tell us when it wants to turn so let’s not anticipate but trade what we see (and not what we expect to see). If momentum fails though, we might see a retest of 32 668 support. Should the level be penetrated decisively the market would probably trade 32 550.
Nasdaq rallied strongly
NAS rallied as expected and is now approaching this year's highs (12 947). A strong break above the level would indicate a move to 13 160 would be likely. If the rally fails and the market drops back below the threshold level, we might see a move to 12800 or so.
USOIL loses momentum at a resistance level
USOIL rallied for two days but has now lost momentum after hitting a resistance created by the February 22 low. If the weakness seen yesterday continues, look for a break below 72.23. If the level breaks the market is likely to trade down to 70 dollars or so. Alternatively, above yesterday's high (74.38) the market could move to 75.60 but only if the breakout is a decisive one and the price doesn't immediately slip back below 74.38.
Gold trades inside a triangle
Gold is currently trading in a triangle formation. Gold has once again created a higher swing low (1955) in the 8h chart, supporting the idea that the market may continue to move higher. If the market continues to remain bullish, we should see a move to 1988. But, if the market breaks below the 1934 support level, the bearish breakout could lead to a move to 1920.
The Next Main Risk Events
- USD Final GDP q/q
- USD Unemployment Claims
- USD Final GDP Price Index q/q
- CHF Gov Board Member Maechler Speaks
- USD Treasury Sec Yellen Speaks
- JPY Tokyo Core CPI y/y
- CNY Manufacturing PMI
- CNY Non-Manufacturing PMI
- EUR ECB President Lagarde Speaks
- EUR CPI Flash Estimate y/y
- EUR Core CPI Flash Estimate y/y
- CAD GDP m/m
- USD Core PCE Price Index m/m
- USD Chicago PMI
- USD Revised UoM Consumer Sentiment
For more information and details see the TIOmarkets economic calendar.
Chief Market Analyst
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Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.
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