Both equities and cryptocurrency markets rallied together last week, as each recovered prior losses. Investors will continue to watch for signs of inflation and the trend of rising rates. The 10-year US Treasury yield has been leading global rates higher, hitting a four-year high last week of 2.93. Yet, for now, it looks like initial concerns have dissipated. The dollar is falling against most assets, which seems to be helping equities. All of the major equity markets followed were positive, with India’s BSE Sensex the weakest performer, up only 0.015%.
Much of Asia was closed last Friday due to the Chinese New Year, yet the Hang Seng was able to complete its four-day trading week with a 5.4% advance to end at 31,115.40, while the Shanghai Composite was up 2.2% to close at 3,199.16. In Japan, Bank of Japan (BOJ) Governor Kuroda announced he would stay for another term which was viewed as supporting a continuation of loose monetary policies. This was viewed positively by the market with the Nikkei 225 advancing 1.6% for the week to end at 21,720.25.
The S&P 500 advanced for each of the past six days (due for a stall or pullback). That by itself should give investor’s pause as the odds now favor a pullback or at least a rest in the near-term. Heading into the new week US financial markets are closed on Monday for a government and bank holiday. This may affect liquidity in global markets heading into the week.
German DAX Index
The DAX found support at 13,003.4 two weeks ago, where it completed an 88.6% Fibonacci retracement of the prior upswing and was 11.7% off its 13,596.90 record peak from a month ago. That low support was also around a prior swing low from August of last year at 11,868.80, with the 14-day Relative Strength Index (RSI) in clear oversold territory. The RSI was the most oversold since August 2015. This means that the uptrend structure, of high swing highs and higher swing lows, has been maintained, at least so far. Therefore, a decent recovery could follow soon. It also means that the August low is critical support and a break below it puts the larger bull trend at risk of a deeper corrective phase.
S&P 500 Index
The S&P 500 Index hit a high of 2,872.87 four weeks ago. That high was followed by a waterfall decline into support of 2,532.69 reached two weeks ago. Support was seen right at the 200-day moving average (purple line) and the 61.8% Fibonacci retracement level. It’s not surprising that price was rejected with conviction from the 200 line as that is a significant moving average, and the first time it’s approached in a while, it will frequently reverse or at least hold a decline. November 2016 was the last time the 200-day moving average was approached as support. Subsequently, the index rallied as much as 8.7% as of last week’s high of 2,754.42.
The SPX has been up six days in a row and is now due for a pullback. RSI hit oversold at the low and has since turned up, which is bullish. Watch the character of the pullback off last week’s 2,754.42 high along with the accompanying volatility for signs of what’s to come next. The key support from two weeks ago is known. A drop below there is bearish. Otherwise, the chance for a continuation of the long-term uptrend remains.
Cryptocurrencies: Strong performance across the board
Large capitalization cryptocurrencies continued to advance off their lows from two weeks ago. A positive for the sector as a whole was the launch of Coinbase Commerce last week, which will make it easier to pay merchants in cryptocurrency, including Bitcoin, Bitcoin Cash, Ethereum, and Litecoin.
Litecoin led the way for the cryptos rising $64.14 or 39.1% to end at $228.24. A couple of developments seem to be driving the advance, including a planned fork of Litecoin Cash and the announcement that LitePay, a merchant payment processing application for cryptocurrency will launch on February 26…