The economic slowdown in China has already sent shockwaves through the global markets, affecting investor confidence and raising overarching concerns regarding the general financial landscape, especially as the world’s second-largest economy slows down. Such a slowdown can have significant implications for commodities, stocks, and currencies because China has shown signs of vulnerability. Thus, sentiments in the market will probably worsen as traders ponder how to guide themselves through these storms.
Today in this weekly market report, we shall weigh all the impacts of China’s slump within all key financial markets. We will look at crude oil, DAX Germany, and NASDAQ for technical analysis purposes in determining their short-term direction, the opportunities at hand, and their volatility that may be ahead for traders.
Taking all of this into consideration, traders should closely track economic indicators as presented through industrial production data from China, real estate data, and export figures. Knowing these sets of information may enable traders to be informed about economic performance and help in hedging risks as they find a tradable opportunity amidst the uncertainty of the market.
Crude Oil: Will Support Hold Despite Global Fears?
Crude oil is acutely sensitive to economic performance in China, which is one of the world’s largest consumers of energy. Crude recently fell off a cliff as global markets responded to the risk-off tone emerging from concerns over China’s slowdown. Today, traders ponder if crude will break support or break lower and take volatility higher.
Main Levels of Awareness
- Support at $78-$75: This is one of the critical support zones for crude oil, supported by technicals in the form of moving averages and pivot points. The 200-day moving average is providing some support now, and a bullish crossover appears to be very likely. This can act as a floor for the market where buyers enter, and it might reverse.
- RSI Divergence: Positive RSI divergence means selling pressure may be easing and may be a precursor to a short-term turnaround. Traders should wait for confirmation before considering longs.
Prospect
If the support sticks, crude oil could bounce, especially if sentiment towards China improves or global risk appetite increases. Otherwise, a fall below the $75 level will take it further down and expose more selling pressure for crude oil.
DAX: German Stock Index on the Brink of a Breakout?
Germany’s DAX index has been ranging since March and is menacingly threatening to break out in both directions without any meaningful follow-through. To that comes China’s economic woes, and the DAX stands to make a huge move in either direction.
Technical Analysis
- Critical Support at 15,400: This area has been acting as support for the DAX in the recent past. A wick below but failure to close at or below this area may be a place to buy from, while a daily close below 15,400 remains a bearish signal for traders to act upon.
- Bearish Momentum: An upside break of this support zone could see the DAX drop to as low as targets around 15,000 or further down as China’s slowdown continues to impact the region’s markets.
Market Sentiment
Like the global indices, China news has a big sensitivity for DAX. Negative news and developments will keep the index down, while an improvement in sentiment may provide a chance to take the index higher. Caution and waiting for the right signals should be the approach of traders in entering any position.
NASDAQ: Under Threat of Deeper Losses?
The NASDAQ has moved rather well on an uptrend for most of the year to date but recently softened a bit. A drop below the 50-day moving average marked the beginning of a possible downtrend, while the continued slide in China’s economy is set to face further pressure downwards.
Key Observations
The first meaningful break of structure in the NASDAQ this year will see its significance taken lightly as it might have a larger play in changing market momentum. Increasingly alarming is that the index has been supported by strong earnings in technology, which may no longer be enough to keep the uptrend alive given macroeconomic pressures at large.
- Support Levels: The next level of significance to track is the 100-day moving average. If the index cannot hold above this level, a deeper correction may ensue, targeting the next significant swing lows as well.
Implication of China’s Slump
With many technology companies embedded in China’s chains of supply and consumer base, any further economic slowdown may worsen the downward trend of the NASDAQ. Hence, traders must watch reports of earnings, economic data, and geopolitical events to assess if the technology sector can make it through the storm.
Events of the Week to Watch
While China’s economic woes continue to drive headlines in market sentiment, a few other critical events might define the market this week:
- U.S. Producer Price Index (PPI): This report comes mid-week and could shed further light on inflation trends. If elevated, this could fuel pressures for more rate hikes, creating further market volatility.
- China’s Trade Data: Much-awaited export and import data will be significant in quantifying the slowdown in the economy. Weak numbers can further dent market sentiment and lead to a selloff in equities across the globe.
- Central Bank Updates: Most major economies continue to see signs of inflation; hence, larger central banks like the U.S. Federal Reserve and the European Central Bank will continue to be hawkish. An adverse surprise on this front is likely to propel markets sharply in one direction.
Conclusion
The important question remains whether the slowdown of the Chinese economy will destroy market sentiment. As one of the biggest economic players in the world, China’s continued slowdown significantly impacts crucial markets, including crude oil, DAX, and NASDAQ. Accordingly, there’s a need for traders to be cautious in looking for technical and fundamental signals that might indicate a shift in momentum in markets.
Patience and careful analysis are the hallmark characteristics of this environment. Keep a close watch on significant levels of support and resistance points, and seek confluence from indicators like RSI and moving averages. Be ready to change your strategy, even as the markets start reacting to these changes. It can turn out to be an opportune time for traders if they remain watchful enough and nimble in response to the shifting landscape.
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