Analytics

Expert Review: Is the US Stock Market undergoing a Reversal?

Mid-term Analytics by Olymp Trade Experts


Amid rumors about the imminent curtailment of monetary measures, the American stock market continues to decline. In addition, this week the gas price continues to grow, which is systematically leading Europe to an energy crisis. What is happening and what to expect next? Don’t miss our review.

 

Weekly Trends

  • Google -5.34%. You could have earned $106.8 by trading short at $100 and a multiple of X20.
  • ETH/USD  +5.59%. Trading up with $100 and a multiple of X10 could have earned you $55.9.
  • Nvidia  -7.92%. You could have earned $158.4 by trading short at $100 and a multiple of X20.

 

Currency Markets

During the week, the American currency demonstrated, perhaps, the highest volatility. The NZD/USD currency pair dropped very strongly, falling from 0.70300 to 0.68600, i.e. more than 2%. A block of good news was published in the US during the week:

  • Data on orders for durable goods (i.e. those goods whose life exceeds 3 years) were released on Monday. In August, the number of orders increased by 1.8%, while the forecasted value was + 0.7%.
  • On Wednesday, the index of pending sales was published in the real estate market for August. The indicator rose by a respectable 8.1%.
  • On Thursday, the GDP data for the second quarter added optimism – the US economy grew by 6.7%.

All this allowed the dollar to strengthen against other currencies. As for the NZD/USD, the pair is currently close to the rather strong support level of 0.68000.

Olymp Trade - NZD/USD chart - Expert Review 2021.10.04
Fig. 1. Currency pair NZD/USD. 1D TF.

On the younger TFs, the indicators show a reversal rather than continued growth. Therefore, you should think about opening long positions with a stop loss just below the pink line indicated above.

 

Stock Markets

Having closed the gap from 20.09, the American Dow Jones index tried to rise, but on Tuesday 27.09 there was a reversal and began to move down. The S&P and NASDAQ indices also continued to decline. The decline in equity markets comes amid rumors that in November the Fed will announce the start of the tapering program. If so, then most likely we are facing not just a technical drawdown, but a full-fledged reversal of stock indices.


The most “affected” in the week were shares of Microsoft (a fall of more than 5%), Adobe (a fall of 8%), Nike (capitalization fell by almost 6.5%) and Nvidia (a fall of more than 6%). On the other hand, against the background of rising oil prices, shares of companies in the energy sector were doing well. Exxon Mobil shares tested $60.5; the price of Chevron shares almost reached $105.

As for the shares of Chevron, we think that this growth just fits well with the concept of a technical rebound. At the moment, a comparative analysis shows that the company’s capitalization is overstated. The P/E is above its industry average of 55.48, but the company wins in terms of dividend yield, which averages over 4% over five years, which is quite high for the American stock market. Thus, the inclusion of these shares in the portfolio on the part of investors may be driven by the desire to receive fairly high dividends, and this can help keep Chevron’s stock price afloat. On the other hand, the beta of its shares is 1.25, which means that if the decline continues on the stock exchanges, the capitalization of the energy company will collapse rather quickly.

Olymp Trade - Chevron chart - Expert Review 2021.10.04
Fig. 2. Chevron Shares. 1D TF.

 

Commodity Markets

Brent crude oil reached a 3-year high and continues to grow. The chart touched the $80 psychological level. The last time oil traded in this range was in September 2018, when the oil facilities in Saudi Arabia were attacked by drones. In October 2018, the local peak was fixed at $86.7. It is this level that will most likely serve as the main obstacle to the continuation of the bullish rally. Although most market participants believe that growth to $100 may well occur by the end of the year.

Olymp Trade - Brent chart - Expert Review 2021.10.04
Fig. 3. Brent oil. 1D TF.

Goldman Sachs analysts suggest a more conservative scenario. Due to the aftermath of hurricanes Ida and Nicholas, they raised their forecast for the price of Brent from $80 to $90 per barrel by the end of 2021.


The bullish trend is also supported by high prices for natural gas and LNG in Europe and East Asia. Expecting a very cold winter, utilities are stocking up on natural gas at a record pace.

The price of Natural Gas has updated the local maximum to around $6.340 per million British thermal units. The gas rally continues.

Olymp Trade - Natural Gas chart - Expert Review 2021.10.04
Fig. 4. Natural Gas. 1D TF.

The US Energy Information Administration (EIA) reported an increase in gas reserves of 88 billion cubic feet last week. The average figure for the last five years is 72 billion.

In addition to the United States, gas is also being stockpiled in Europe. It is already clear that European storage facilities will not be 100% full due to the approaching cold season. And while this is nothing more than additional insurance, increased demand can drive the price even higher.

 

Cryptocurrency Markets

Bitcoin continues to decline. Local support is at $41,000. The fundamental backdrop is negative and is again caused by China’s prohibitive actions in relation to cryptocurrencies. If the situation does not change in the coming weeks, the main cryptocurrency may well retest the strongest support at $30,000, before that it should test the intermediate level of $37,000.

Description: Olymp Trade - Bitcoin chart - Expert Review 2021.10.04
Fig. 5. Bitcoin. 1D TF.

Altcoins continue to lose ground, falling faster than BTC. The dominance index of the main cryptocurrency rose to 42.5%. The fear and greed indicator shows 20 points in the position of Extreme Fear. The indicator was last in this position in July, when Bitcoin last tested the $30,000 level.


After the People’s Bank of China reiterated the threat of cryptocurrencies to the traditional financial system on September 24, many Chinese companies went to restrictions under pressure from the regulator.

  • From October 8, 2021, Alibaba will ban the sale of mining equipment for bitcoin, ether and other cryptocurrencies. It will also not be possible to buy textbooks or mining software on the site.
  • Several mining pools have ceased operations, in particular the Ethereum mining pools SparkPool and BeePool. F2Pool has already refused to serve customers from the PRC.
  • There have been reports that the popular analytical services CoinGecko and CoinMarketCap are no longer available in China.
  • Since the end of September, exchanges Binance, Huobi and BitMart, as well as the analytical service Feixiaohao, have banned registration from China.
  • Biki cryptocurrency exchange announced it would close at the end of November.
  • Chinese brokers Tiger Brokers and Futu will ban cryptocurrency trading from October.

But there is good news as well. Twitter has added the ability to accept donations in cryptocurrency and plans to add an interface for working with NFT. After that, the number of nodes and channels in the Lightning Network will increase during the day by more than 23% in 24 hours.

 

Conclusions

Over the past week, the dollar has strengthened quite a bit, provoking numerous trends in the foreign exchange market.

The stock market is on the verge of a serious decline, with many companies continuing to sell off.

The commodity market, or rather the energy market, continues to grow in anticipation of a cold winter and an increase in demand for non-renewable energy sources.

On the crypto market, an active redistribution of funds continues against the backdrop of a fall in the price of bitcoin. It can be assumed that after the ban on working on centralized exchanges, Chinese traders will quickly switch to DEX and activity in the DeFi sector will increase even more.

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