1/ Surprisingly, Little has Changed
2/ Euro in the Zone
3/ Bad News Bank Bears
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1/
Surprisingly, Little has Changed
At times, the price action in the markets tells you more about what is going on than the news headlines surrounding it. When news implies that the market should go one way, but market prices do the opposite, it’s time to pay attention. It usually pays to believe what the market price is telling you.
For example, an investor might think that when ‘unprecedented’ military action takes place in a volatile region, that investors would display grave concern over the uncertainty this implies. Investors don’t prefer uncertainty, and they tend to sell out positions if they think the future of a bullish trend is highly uncertain.
The downtrend in the S&P 500 Futures (ES) shown in the chart below are a good example of the uncertainty investors were sensing over the past two weeks. This didn’t just take place over the weekend after the headlines announced the drone strike from Iran.
This downward trend was driven by growing uncertainty over a wide range of factors, not the least of which was a potential for Iran to take action. So now that the action has been taken, how is the market reacting? For now it seems as though investors are expecting things to proceed mildly, as ES futures stage a tepid rebound.
2/
Euro in the Zone
Even the currency markets displayed muted price action in the first few hours after markets opened in Australia and Japan. Though the price action in the hourly chart below shows a slight upward bias, the price has a long way to go to make up for losses from the days before.
The lines on the chart above show two Keltner Channel lines market the measure of _1 and -1 Average True Range (ATR) over the last 12 hours. Here the EURUSD shows itself to be trading well inside this range, suggesting that, at least of the hour this was captured, just after 6:00 a.m. Greenwich Mean Time (GMT), markets were not ready to commit into a new direction. This suggests that investors don’t expect a military escalation in the near future.
3/
Bad News Bank Bears
That could change quickly when the U.S. markets begin trading. Even before this news, investors showed a very pessimistic response to the first official day of earnings season. All three of the major investment banks reporting Friday, Citigroup ( C ), J.P.MorganChase (JPM), and BlackRock (BLK), were subjected to a severe dose of selling.
This news that accompanies these charts is that each of them beat estimates handily and showed increased profit margins through reduced expenses. Most investors would expect that this news should drive prices higher. But what we see instead tells us a lot more about what investors were thinking.
The prominent red candles indicate that investors feel more inclined to reduce exposure to these shares right now. If that doesn’t change before the markets begin trading in New York City, we are more likely to see continued selling though the day on Monday.
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Originally posted 15th April. 2024
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