Chinese and US tariffs go into effect as indices recover off the lows
A surprise green week for equities as risk-off plays subside and the DAX rises on weaker euro and ECB easing expectations.
DOW: A surprise finish higher despite a clear fundamental negative outlook
The index’s price crossed back above the 50-week moving average to rest above all its main long-term moving averages, despite a clear rise in trade risks. With the fundamental outlook shaky as new tariffs take effect, from a technical standpoint the outlook is more positive. And technicals running contrary to fundamentals means the disconnect can result in speculative moves that upset short-term positions. Retail bias is up 16% since the start of last week as shorts hold on, while institutional bias hasn’t budged from its extreme long 88%. It’s a US bank holiday today, but it’ll be a busy week with NFP and Powell’s speech the highlight on Friday and focus on the retail sector and shares prior given the effect fresh tariffs will have on it.
NASDAQ: Short-term bull trend line still holding contrary to global uncertainties
The technical overview for the Nasdaq is also running contrary to the fundamental outlook, with its DMI still positive and its price above all its main long-term moving averages on the weekly chart. It too finished higher for the week, with Tesla outperforming on Friday thanks to news that its cars will avoid Chinese tariffs. Retracement back down in equities would surprise no one at this stage, especially on the lack of any deal or action that would cause the current trade war to subside. Retail bias is 7% higher standing now at a heavy short 66%, while institutional bias is opposite at an unchanged majority long 60%.
DAX: Breaching its short-term resistance level on a weaker euro and ECB easing expectations
Any gains in the index are down to two main reasons whose underlying is the same, namely that worsening Eurozone (and German) data is increasing the chance of ECB easing, and as a result could aid German shares on two fronts: (1) The first would be due to monetary easing pushing the euro lower and aiding the export competitive sector, of which Germany’s manufacturers are well-renowned for, and (2) indirectly as ECB easing would mean buying up more Eurozone bonds, making the hunt for yield tougher and forcing money into riskier assets. That’s not to say it’ll find its way into German equities, but it would be a factor without which the DAX' price would be significantly lower. From a technical standpoint all its indicators are neutral but its ADX is showing an ongoing propensity to trend, and hence could make contrarian strategies more attractive.
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