Dow, Nasdaq, and DAX finish the week lower
US-China trade war at risk of expanding keeping US indices at bay.
DOW: Mid-term resistance level continues to hold as trade worries mount
Although the main technical indicators are bullish thanks to long-term gains, fundamental worries continue to persist, with the news regarding a potential US prevention of Chinese companies listing hurting risk appetite. Should the trade war expand to engulf capital markets and that would hurt capital flows and cause portfolio readjustments, and almost certainly hit risk appetite and entice contrarian sell breakout strategies over a conformist buys. In terms of sentiment, Commitment of Traders (CoT) bias remains at extreme long levels of 88% with DJIA consolidated longs rising by 1,755 lots and shorts rising by a smaller 450 lots. As for retail sentiment, range-trading shorts took profit last week and took the bias 6% lower to a less heavy majority short 67%.
NASDAQ: Technology shares underperform in a week of retracement
US equities were under pressure last week, retracing further off the highs and mid-term resistance levels holding. And tech stocks underperformed which hit the Nasdaq harder, and keeping its technical overview more consolidatory but still showing long-term positive technical bias. But as with the Dow, it remains prone to any trade and risk-related shocks, which would help contrarian breakout strategies over conformist reversal/fading ones, and would mean that a buy off the 1st Resistance level should be avoided as a fade. CoT bias is a worry to note, as majority long bias has dropped 9% to 55% on a reduction in long positioning by 2,350 lots and a simultaneous increase in short positioning by 1,852 lots. Should the current trend persist, and we’ll see a shift to majority short, where retail bias currently stands even after significant short profit-taking last week.
DAX: Outperforming at the end of the week
As the trade war looks set to worsen between the US and China, the question is whether the current recession in manufacturing will expand to other sectors. A US ban on Chinese listings would hurt US indices more so than European, and hence its no surprise the German Dax outperformed late last week even if it finished lower overall. Weakness in both Dow and Nasdaq aided retail traders into taking profit, but here they’re getting squeezed further, with the bias rising 7% for the week to a heavy short 72% as range-trading shorts get stuck and longs take profit. Plenty of German (and Eurozone) data this week, starting with retail, Consumer Price Index (CPI), and employment figures out of Germany today.
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