If we do continue to break down you have plenty of time to get involved in that move, just like you would have plenty of time to ride an uptrend.

• The West Texas Intermediate Crude Oil market rallied a bit during the trading session on Friday, after initially falling in reaction to the jobs number.
• It is currently hanging about the $104.50 level, putting this market just below the previous uptrend line.
• The previous uptrend line has held as resistance so far, so “market memory” appears to be held at the moment.

If we can break above the previous uptrend line, then it’s possible that the oil market may go looking to reach the 50-day EMA above, which is just below the $110 level.

Breaking above the $110 level opens up the possibility of a move to the $120 level, which might take a bit of effort, but it is most certainly a possibility. On the other hand, if we turn around and break down below the lows of the trading session on Friday, then I think we will kick off more selling pressure.

Oil Supply and Demand

Unfortunately for oil traders, there are so many different things moving at the same time that could cause problems in both directions that this is going to remain a very difficult market to get a handle on. The most important thing you can do is limit your position size and keep a cool head. The supply of crude oil is still far below where it normally is because we had just spent the last two years hiding in our homes instead of drilling for crude oil. With that in mind, it looks as if the supply is nowhere near strong enough or demand, but it should also be stated that there is serious concern about demand destruction going forward as it looks like we are heading into a recession. Because of this, the market looks as if it doesn’t really know what to do, but it is worth noting that the biggest candlesticks as of late have all been red.

The 200-day EMA has offered significant support near the $95 level, but if we were to break below there, it’s officially the end of the trend, and we would probably fall quite drastically. Nonetheless, I think you are probably better off waiting to see what happens with this trendline retest than anything else in the meantime. After all, if we do continue to break down you have plenty of time to get involved in that move, just like you would have plenty of time to ride an uptrend.

Ultimately, if we did break above the $110 level, that would be a huge change in attitude.

The West Texas Intermediate Crude Oil market has rallied rather significantly during the trading session on Thursday to test the bottom of the previous trendline. We had been in a positive channel, and therefore now that we are approaching the bottom of the trendline suggested there should be a certain amount of “market memory” in this area, not to mention the fact that the $105 level is right in that area.

Underneath, we have the 200 Day EMA that was tested during the previous trading session, right around the $95 level. The market is paying close attention to the $95 level, as it could open up a massive drop from there. If we were to break down below the $95 level, then it allows the possibility of a major selloff. On the other hand, if we were to break above the $105 level, it’s likely that we could go to the $110 level, which is right around the 50 Day EMA. Ultimately, one thing that I am paying close attention to is the fact that we have seen a lot of significant noise over the last couple of weeks, as we have seen a lot of large red candlesticks. That typically means that there is more aggression to the downside than the up, so it makes quite a bit of sense we would see further selling.

Ultimately, if we did break above the $110 level, that would be a huge change in attitude. People are starting to worry about the recession more than anything else, which will cause a lot of demand destruction when it comes to oil. That being said, the market is likely to continue to see follow-through given enough time. The overall attitude of the market is one that is going to have to pay close attention to not only recession but the possibility that we have not been drilling for a couple of years, so supply is a bit out of whack as well.

I think the only thing you can count on in this market is probably going to be a lot of noisy behavior, therefore I think position sizing will be crucial. As long as you keep your position size relatively reasonable, you be able to navigate this market. That being said, it is worth noting that we did not break above the uptrend line.

The DAX has been somewhat volatile during the trading session on Monday, as we continue to look at the €13,250 region as an area of interest because it has been supported in the past, but we did break through it on Thursday of last week. Over the last two trading sessions, the market has rallied to test that area for potential resistance, so now “market memory” could come into the picture. At this point, it’s only a matter of time before the sellers jump back in as we continue to see a lot of negativity.

When you look at the chart, you can see that over the last couple of weeks, all of the impulsive candlesticks have been read, showing that there is much more momentum to the downside than anything. It’s not until we can break above the €13,750 level before I would start to question the overall downtrend. After all, there are a lot of concerns in the European Union, and of course, Germany when it comes to energy supply. In fact, Germany has gotten so desperate that they are starting to go back to coal.

The 50 Day EMA is sitting at the €14,000 and is dropping lower. The market has recently bounced from the €13,000 level, which of course is a large, round, psychologically significant figure. If the market does rally a bit from here and then shows signs of exhaustion, is very likely that we may push to go down to the €13,000 level again. If we can break down below the €13,000 level, then it’s possible that we could go down to the €12,500 level next, an area that we had bounced from rather significantly as of late.

About the only thing that the DAX has going for it at the moment is the fact that the euro is cheap, but if there is going to be a major slowdown globally, even that probably doesn’t matter. I have no interest in buying any of the equity indices right now, not just the DAX. Quite frankly, we need to see a shift in inflationary expectations and central-bank attitude. As long as the market continues to have to fight these headwinds, I just don’t see how this market rallies for a bigger move anytime soon. A little bit of a bounce in the short term does make a certain amount of sense, but given enough time we will continue to see sellers.

We expect the index to return to decline during its upcoming trading.

The Dow Jones Industrial Average rose during its recent trading at the intraday levels, to achieve gains in its last sessions, by 0.70%. It gained about 238.06 points, at the end of trading at the level of 34,049.47, after declining in Friday’s trading by -2.82%.

US stocks rose late in the session on Monday, ahead of earnings reports from major tech names later this week, with the Dow Jones Industrial Average posting its biggest intraday turnaround in two months, as investors shrugged off early fears linked to expanding China’s COVID shutdowns.

In US economic news, Chicago Fed activity fell to 0.44 in March, a three-month low, from 0.54 the previous month, in line with a drop to 0.45 in a Bloomberg survey. The Dallas Fed Manufacturing Survey fell to 1.1 in April from 8.7 in March, with lower production and employment readings offsetting gains in new orders and prices.

Technically, the index is moving in its recent trading within the range of a bearish corrective price channel that limits its previous trades in the short term, as shown in the attached chart for a (daily) time period. Its recent rise compensates part of what it incurred from previous losses, and at the same time it is trying to discharge some of its clear oversold areas using the relative strength indicators, especially with the beginning of a positive crossover in them.

Therefore, we expect the index to return to decline during its upcoming trading, as long as the resistance level 34,665.50 remains, to target the pivotal support level 32,578.70.

Looking at this chart, we are obviously in a downtrend, so I obviously prefer selling.

The British pound had a very bullish Wednesday session, but during the day on Thursday, we started to see that unravel a bit. Initially, the market did take off to the upside but then turned around to fall rather hard. By doing so, the market shows just how precarious the situation is for the Sterling bulls. The biggest problem is probably not so much the British pound, but it is the US dollar being so strong. After all, there are a lot of risks out there right now, and therefore it suggests that a lot of people will be running towards the bond market or at least the safety of the US dollar.

The 50 Day EMA has been drifting lower for quite some time, looking very likely to approach the 1.32 level. The 1.32 level is an area that has been important previously, so it all ties in together for a potential ceiling in the market. Having said that, after the action on Thursday I am not necessarily going to be holding my breath for that to happen. At the very least, there has been a bit of a “shot across the bow” of any rally happening.

Underneath, the market did pierce the 1.30 level at one point, and if we were to break down below that candlestick, it is likely that the market could go to the 1.28 level, although it should be said that there is a lot of noise between the 1.30 level and the 1.28 level. With all of that previous noise being in that area, I think it probably needs to hold as support if the British pound has any chance of recovering from a longer-term perspective. On the other hand, if we do break down from this point, I expect it to be very noisy and more of a grind lower.

Looking at this chart, we are obviously in a downtrend, so I obviously prefer selling. The market would have to clear the 1.32 level on a daily close for me to take a serious look at buying, and between now and then I would have to assume that we are looking more or less in a situation where you are looking to fade rallies that show the first hint of exhaustion. Keep in mind that volatility has been very high in most markets as of late, and this one could end up being just like those.

At this point we have a market that is looking for some directionality, but the longer-term attitude most certainly has been negative.

The Euro initially tried to rally during the trading session on Thursday but gave back the gains to show signs of weakness. We are back below the 1.11 level, suggesting that we are ready to continue grinding lower as the overall trend has been so strong. Because of this, the market is likely to continue to find sellers on short-term rallies, just as we did over the last 24 hours.

The fact that we wiped out the previous session is a sign of rather significant negativity, and with the jobs report coming out during the day on Friday, it is very possible that we could see the US dollar move in this market rather rapidly. A breakdown below the lows of the trading session and a daily close below there as well would be reason enough for me to start shorting again, as the 50 Day EMA has offered significant resistance. At that point, the market more likely than not could go looking towards the 1.0850 level, an area we had bounced from previously.

The alternate scenario is that we turn around and break above the crucial 1.12 handle, which is an area that has been important multiple times. Clearing that area opens up the possibility of the market looking towards the 200 Day EMA, although it is not something that I see as being very likely in the short term. However, if we do get shocking news out of the United States when it comes to employment, that could be the catalyst to get this thing moving to the upside.

Interest rate differentials between the two economies continue to favor the United States, and therefore the US dollar. In that scenario, it is very likely that we continue to see more of a “sell the rallies” type of situation, especially on short-term charts. The downward trajectory of the market has been confirmed more than once, and I think that will more often than not be the case going forward.

I believe at this point we have a market that is looking for some directionality, but the longer-term attitude most certainly has been negative. I do not see this changing anytime soon, and therefore it is more likely than not only going to be a choppy and noisy market, but most certainly a -1.

I think that as long as we stay above the support underneath, value hunters will continue to push the market.

The S&P 500 initially pulled back in the futures market on Monday, only to turn around to reach the upside. The 4500 level underneath continues to be an area of interest, as it has been both support and resistance previously. We now look as if we are threatening the previous double top that sits at the 4585 level, which will be the last vestiges of resistance.

If we were to break above the double top at that level, it would have this market breaking to the upside, perhaps reaching all-time highs. Iif the bears cannot protect that area, it will come down to fundamental noise, which would have a long way to go in pushing this market back down. At this point, the Russians are even starting to soften their stance on demands for peace in Ukraine, so that could be yet another reason to think that things are turning around for a bigger move.

Regardless, even if we do continue to see upward mobility, the reality is that we are a bit stretched at this point, so it makes a certain amount of sense that we would get a little bit of a pullback. Underneath, near the 4450 area, there does seem to be a significant amount of support, not only based upon the previous several sessions but the fact that we have the 50-day EMA sitting there, as well as the uptrend line.

There is no such thing as an easy trade at this point, because the markets have been running on pure emotion for several weeks. Now that we have all but wiped out the concerns of the war in Ukraine stretching out across the border into other parts of Europe, we start to focus on the idea of economics. It appears that Wall Street no longer believes that the Federal Reserve has the guts to tighten the economy, but the Federal Reserve still maintains that it does. In this scenario, somebody’s going to lose, but right now it looks like the momentum is most decidedly to the upside. However, you should keep in mind that momentum seems to be a fickle thing and will continue to be a major issue at times. I think that as long as we stay above the support underneath, value hunters will continue to push the market.

The next few months are going to be very difficult and very noisy, and as a result, it looks likely that the markets will need to be treated with extreme caution. 

The S&P 500 initially fell on Friday and looked as if it was going to struggle for a bit, only to save itself at the end of the session. This is quite typical as institutions come in late in the day and pick up stocks. That being said, the market is more likely than not going to face a bit of resistance between here and the small double top that sits at the 4585 handle. The area should be difficult, but it is going to be interesting to see whether or not we can break above there. If we do, then all of the negativity is suddenly gone.

What is interesting is that bond yields continue to race higher, as the bond market does not seem to be as excited about the prospect of the Federal Reserve backing down like Wall Street is. Most Wall Street pundits think that the Federal Reserve will not dare raise interest rates in this inflationary environment, but Jerome Powell may have no choice. If that is the case, it will absolutely crush the stock market, especially if he has to do it rapidly in an environment that is very dangerous.

On the other hand, if Jerome Powell sides with the institutional bankers again, then it is very likely that inflation will run hot, and stocks will be bought as an inflation hedge. This would not be conducive to an economy that allows for a lot of profits for companies, but it has been a while since the stock market had anything to do with that. It is more about liquidity at this point, and the more liquidity there is, the higher these markets tend to go.

It is all about monetary flow, and it is likely that it comes down to what the Federal Reserve does. The next few months are going to be very difficult and very noisy, and as a result, it looks likely that the markets will need to be treated with extreme caution. The consolidation just underneath should be supportive, but if we were to break down below there, the 4450 handle will be the gateway to lower prices. Ultimately, this is a market that I think will find its way higher in the short term, but it is only going to take just a little bit of negativity to turn things around.