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This market was smashed on Friday and price action now favours short positions. Names like Facebook and Twitter have been offloaded at a rapid pace as money managers simply don’t want to hold them, given the elevated valuations. Most investors have known for a while that this space had ‘bubble-like’ qualities, and whether we are seeing the popping of this bubble is yet to be seen, but the fact that the index closed below the uptrend of the June 2013 rally should be noted.
Technically this pair looks very bearish and after breaking key support around the 1.50 area would now be eyeing the head-and-shoulders target at 1.4280. Given the cross is trading just below 1.4800, there now seems plenty of downside. There is strong horizontal support at 1.4560, where there were a series of failure highs from September and October last year. Fundamentally, shorts make sense, although I would not be surprised if we have seen the low point in European inflation (at 0.5%). The pair is oversold at present so I would look for a rally to enter shorts. German industrial production is out at 4:00pm AEST and the market expects a slight slowdown in the pace of growth to 0.3% on the month.
We saw the gold price break the years uptrend on March 24 and after trading down to $1277 has reclaimed the $1300, thanks largely to a below consensus US payrolls print and subsequent USD weakness. $1321 (the 38.2% retracement of the sell-off from $1392) should cap the rally and unless the USD really comes under pressure then I would look to use $1321 to enter new short positions.
If you’re looking for a stock to short then Twitter seems to be one that should be on traders’ radar right now. Having reached $74.73 late last year, it has now lost 40% of its value. The trend lower is strong and the stock will need to break trend resistance at $48.50 to make any sort of attempts at pushing materially higher. One of the things concerning the market is the fact that Twitter only IPO’d 122 million shares out of 588 million, which effectively means there are 476 million shares coming for sale with the post IPO lock-up period over. With price still falling we could see holders panic and sell now rather than wait and hope the price rises.