Can risk assets go lower?

Summary: 

One interesting thing that we made note of in some of our daily commentaries last week was that although US CPI data surprised to the upside shockingly, (with a selloff in risk assets typically expected after), the markets recoup the losses it made on the day itself and since then, it has continued to trade higher. That’s likely a positive sign that liquidation by investors is over and short-term speculative traders are likely to be short of the market now after the number and if there’s no bad news, the market is likely to creep higher and squeeze these guys for a change which is characteristic of bear markets. When things become very obvious that it should go down to the downside, it tends to squeeze people who come late to the party. So, we are kind of seeing that right now, risk assets are trading stronger. Nasdaq is trading quite positively, Bitcoin is trading above 22,000, Ether is almost at 1,500 now. So we’re seeing a lot of short covering after long periods of bearish news and bearish price action. We could be in a phase of the retracement, so keep an eye on this, keep positioning to the size that is commensurate with your capital and do not over leverage as volatility remains high.

Noteworthy Earnings this Week

Monday: International Business Machines (IBM), Bank of America (BAC), Goldman Sachs Group (GS), Charles Schwab (SCHW)

Tuesday: Johnson & Johnson (JNJ), Netflix (NFLX), Interactive Brokers Group (IBKR), Lockheed Martin (LMT), Volvo (VLVLY)

Wednesday: ASML Holding (ASML), Abbott Laboratories (ABT), Nasdaq (NDAQ), United Airlines Holdings (UAL)

Thursday: Alaska Air Group (ALK), American Airlines Group (AAL), AT&T (T), Dow (DOW), Nokia (NOK)

Friday: Twitter (TWTR), American Express (AXP), Verizon Communications (VZ)

The following is the list of our current biases on positions.

Currencies Bias

EUR – EUR tested the support at parity and failed to hold below that level. As such, it is recovering from the lows, but the reasons for it to go much lower remains. Stay short and look to add to shorts when momentum on this retracement wanes.

Interest Rates

None.

Equities

Neutral – Stay cautious.

Ether/USD (ETH/USD) Daily Candle & Ichimoku Cloud Char

Source: tradingview.com

Although there’s hardly any good news in the cryptocurrency sector these days, the ETH has managed to continue its recovery from the lows, and it is now attempting to break above the daily Ichimoku Cloud resistance. The rally of recent days is fueled by news that the Ethereum Merge (where the network will change from the energy-intensive Proof of Work consensus mechanism to a more energy-efficient Proof of Stake system) will take place in September. It is still early days yet, but if ETH/USD should trade above the daily Ichimoku Cloud decisively, a new uptrend is likely to begin.