INDICES MARKET OUTLOOK – 6 SEPTEMBER 2021

Strong week for technology stocks in the U.S equities market as NASDAQ, the Dow Jones and S&P500 closed the week out at +1.45%, -0.3% and +0.53% respectively.

Last week’s main theme was the release of Non Farm Payrolls (NFP) data points, which left investors disappointed. Only 235 000 jobs were created in August which allowed stocks to pullback slightly before finding one last push to close the week out. Not everything was disappointing as the Unemployment Rate fell from 5.4% to 5.2% which is a slight improvement in the job market. The play on equities is slightly confusing at the moment. Weaker NFP data usually relates to a greater chance of asset tapering deadline being pushed back which means more liquidity for longer i.e positive for stocks. But this can also be seen as a negative as it shows signs of a slowdown in economic recovery. That being said, it seems the only way stocks are going is UP. Even if a pullback is required before we see that.

In terms of risk events this week, investors will be eyeing job openings data on Wednesday following the disappointing NFP results. We also have Jobless Claims and PPI on Thursday and Friday respectively. This should bring some liquidity to the market for this week, as we have Labour Day today in the US at the time of writing.

FUNDAMENTALS FOR THE WEEK AHEAD

Looking at NASDAQ from a technical perspective, we are once again at new all time highs at the time of writing. Last week came in the form of a lot of consolidation, but this was most likely due to the fact that investors were waiting for NFP data. Fundamentals look bullish for stocks at the moment, but with the recent bullish momentum we’ve seen on NAS, it is still susceptible to profit taking on a large scale. Should we see said pullback, for the week ahead, immediate support is offered around the $15 600 region followed by the psychological level of $15 500. Should bears manage to pull price back that far, the next point of interest would be the prior week low which could also act as support going forward.

NASDAQ 4 HOUR TIMEFRAME

$35 500 remains strong resistance for the Dow. On six previous occasions last week, price failed to breach this level. Should the bears continue to hold this level, we could expect one last pullback on the Dow before seeing further upside into the $36 000 level. Key areas of interest for the week ahead includes the ascending trendline stemming from lows throughout July and August and the psychological level of $35 000. With the current fundamental backdrop for equities, I believe new highs could be seen in the near future.

DOW JONES DAILY TIMEFRAME

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INDICES MARKET OUTLOOK – 30 AUGUST 2021

U.S Equities once again trading at new All Time Highs after a hawkish Jackson Hole Symposium. NASDAQ and the Dow Jones both closed the week out at +2.2% and +0.97% respectively.

The main culprit of last week’s bullish action looks to be the approval of the Pfizer vaccine by the FDA. The Corona virus continues to spread in various parts of the world and with the ongoing talk about tapering asset purchases, this could be the driver of a reduction in liquidity in the market. The Central Bank is likely to scale back their bond buying program by the end of this year, but remains patient to implement interest rate hikes. Last week saw the DXY pull back alongside the 10 Year Treasury Yields, showing the market is well prepared for tapering.

All eyes were on last week’s Jackson Hole Symposium which delivered a hawkish-biased message from Jerome Powell. The essence of his speech was that the central bank will start tapering the $120 million per month bond buying program. He also emphasized that interest rate hikes will not follow after tapering. All of this equates to an ultra-low interest rate environment here to stay, and this in turn benefits Technology stocks. All in all, the speech soothed some market fear and boosted market confidence.

In terms of risk events this week, we have quite a full calendar with a few high risk events scheduled to take place. Investors will mainly be eyeing NFP data on Friday as well as the Unemployment Rate to continue tracking the rate of job recovery as well as overall market recovery. Consumer Confidence and ISM Manufacturing on Tuesday and Wednesday respectively, will also bring liquidity to the equities market.

FUNDAMENTALS FOR THE WEEK AHEAD

Looking at NAS from a technical aspect, new all time highs have been achieved. Last week’s fundamental backdrop was enough to propel NAS above previous consolidation with price looking to target the $15 500 level before profit taking occurs on an institutional level. The fundamental backdrop of NAS is bullish, “Buy The Dip” is going to be adopted once again. For longer term traders, the first levels of immediate support comes in around the $15 100 region as well the psychological level of $15 000 where price could once again turn to find new highs.

NASDAQ 4 HOUR TIMEFRAME

The Dow rejected the $35 500 level twice last week with it currently trading around that region at the time of writing. Should $35 500 hold as resistance in coming sessions, we could see sustained bearish momentum on the Dow until around the $35k region where we could see the ascending trendline come into play once again. Should $35 500 be broken, we can anticipate price to continue climbing potentially into $36 000 according to the -0.27 Fib Extension level.

DOW JONES DAILY TIMEFRAME

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USOIL – RENEWED INFLATION FEARS?

At the beginning of July, we provided our students with an outlook on Oil & the transitory inflation stance. With the FED continuously stating that inflation is transitory, we expected a cool down in oil prices. The OPEC discussing increases in oil supply issuance set the stage for a pullback.

6 JULY FORECAST

Since then, we’ve seen a +-16% decline in oil prices. In August, we saw Biden requesting an increase in oil production from OPEC, to counter rising gasoline prices. This saw massive push back from 24 Republican senators on the controversial discussion, as Biden asks other countries to increase production while the administration is asking American oil companies (under tight environmental restrictions) to do less.

USOIL MONTHLY

Taking a look at the oil monthly on a logarithmic chart, we see a major trend line test originating from 2008.

Crude oil inventories is set to release at 4:30pm SAST. It will be interesting to see if supply increases similar to what we saw at the beginning of the month.

AUGUST US CRUDE OIL INVENTORIES DATA

Staying on the inflation narrative, many investors have been monitoring the 10 year bond yields, following inflation expectations. An interesting point to observe is that Oil followed the US10Y, however lagging by a few months. Once the 10Y broke structure below 1.40, we saw outflows simultaneously from Oil, forming a peak.

USOIL SIDE BY SIDE WITH US10Y

The 10Y yields peaked on the 30th of March whereas Oil peaked on the 6th of July. My thought process around this is that as yields continued to rise, investors built up more fear around sticky inflation, seeing a rotation of capital into Oil. Once we broke structure on yields, capital outflows were observed.

Starting the week, oil has had a strong bounce, now sitting at last week’s open, as well as US10Y formed a rounded bottom, seeing a 3.8% rise this week. Above 1.40%, anticipate further inflation fears to mount. Below 1.20%, anticipate a drop towards 1.10%.

USOIL DAILY

Looking back at the daily timeframe, we can see the significant support found at $62. Currently we are floating around the 78.6% fibonacci as well as March highs. Should we close above $68, I anticipate $69.50 to be breached, breaking structure to the upside towards $71.50. The higher low could be in, however an old saying goes “Never buy the first bounce” – I will be looking for clearer price action to confirm the switch back to bullish, $55 is not off the cards just yet. I personally, am leaning towards further downside.

Apart from the US oil inventories today & the decision of OPEC increasing supply issuance, the House passed a $3.5T budget bill in a 220-212 vote as well as an advanced $1T infrastructure bill. It is key to note that these figures will likely change as the GOP argue this would increase inflation while the White House disputes this.

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INDICES MARKET OUTLOOK – 23 AUGUST 2021

Another “Buy The Dip” week in the markets last week as we once again saw US equities trading near their All Time Highs to close out Friday. NASDAQ, the Dow Jones and S&P500 all closed at -0.21%, -1.06% and -0.53% respectively.

Last week looked to be the beginning of a retracement in the equities market, before investors bought everything up on Friday. Last week started off on a dull note in the markets with various countries still being affected by the Delta variant despite millions being vaccinated. Last week’s FOMC Meeting Minutes signaled that a majority of Fed members support an idea to scale back the $120 billion per month asset purchasing by the end of this year although economic data shows signs of slowing economic recovery. The current theme within the markets seems to be a mixture of tapering, economic growth, Delta variant concerns as well as a market that is overstretched after months of outperformance.

This week, investors will be eyeing the Jackson Hole symposium on Friday for clues on the Fed’s move with regards to tapering. Jerome Powell will also be in focus as he is expected to officially announce the tapering of asset purchases at this meeting. If Powell continues to pushes back on tapering talks, then we could see stocks getting a bit of a boost and correcting this past week’s losses. Investors will also be eyeing GDP as well as Jobless Claims data releasing on Thursday.

FUNDAMENTALS FOR THE WEEK AHEAD

Looking at NASDAQ technically, we can see we had that bearish momentum at the start of last week before investors bought the dip up. We had that bullish reversal around the 61.8 Fib retracement level and price has simply climbed from there, currently trading near All Time Highs at the time of writing. Should price continue in this fashion, the first area of potential resistance it will come into is the prior All Time High. Breaching this level opens up room for a move even higher into the $15 350 region according to our Fib tool. This will all depend on the fundamental backdrop of this week with the Jackson Hole symposium as well as other risk events.

NASDAQ DAILY TIMEFRAME

Similarly on the Dow Jones, we see that same reversal to the upside around the ascending trendline stemming from Daily lows as well the 50% Fib retracement level. At the time of writing, price is approaching those All Time Highs around that $35 500 region with it currently looming as potential resistance. Should price manage to clear, we would look to see continued bullish momentum targeting 36k. Again, this will all be dependent on what this week’s fundamental backdrop looks like.

DOW JONES DAILY TIMEFRAME

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INDICES MARKET OUTLOOK – 16 AUGUST 2021

The indices market ended last week mainly upbeat with NASDAQ, Dow Jones and S&P500 closing at +0.18%, +0.81% and +0.94% respectively.

Last week’s moves higher could be due to consumer sentiment data showing that economic recovery may be slowing down. A deteriorating consumer sentiment may give the Fed more reason to stay put amid rising inflationary pressures. Last week also saw the US 10 Year Treasury Yields slowly climbing back into the 1.3% – 1.4% region. This move boosted cyclical stocks i.e Dow Jones.

US 10 YEAR TREASURY YIELDS

In terms of risk events this week, investors will be paying close attention to Retail Sales data, FOMC Minutes as well as Jerome Powell’s speech on Tuesday. Powell could simply reiterate his cautious approach on the economy while FOMC Minutes could continue reinforcing the central bank’s broad confidence in the medium-term economic outlook. That being said, it could be enough to fuel the Dow Jones to outperform NASDAQ in weeks to come with Quantitative Easing still going strong at $120 billion a month.

FUNDAMENTALS FOR THE WEEK AHEAD

As mentioned in last week’s market outlook, the “Buy The Dip” mentality was adopted as investors bought up any dips in NASDAQ. We saw a move to the upside as the psychological level of $15 000 held as support in line with the ascending trendline acting as dynamic support as well. For the week ahead, with fundamentals for stocks being bullish, a pullback would be perfect to accumulate more long positions. One more drive in $15 000 could be possible as it lines up with that previous level of support as well as the 78.6% Fib retracement level. Any closures below the 100% Fib level would invalidate bullish momentum for the time being.

NASDAQ 4 HOUR TIMEFRAME

Last week saw the Dow Jones find new All Time Highs after trading sideways for the past few weeks most likely due to the climb in Treasury Yields. Same approach will be applied to the Dow. Buy any dips. As mentioned earlier, with QE still going strong, this gives cyclical stocks the upper hand. Technically, a pullback from the All Time Highs could provide decent risk to reward setups to go long. This week’s focus will be the psychological level of $35 000 as it lines up roughly with the previous consolidation block as well as our 61/78.6 Fib levels. With the fundamentals this week, be weary of dips further into $34 800 or the ascending trendline potentially. Do not catch a falling knife. Wait for clear reversals before entering positions.

DOW JONES 4 HOUR TIMEFRAME

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EIP-1559 – WHAT THE FORK ?

The idea for EIP-1559 came about in 2017/2018, however this was rather dismissed with not a lot of developers working on it. ” The community just kind of sat on it for a year, a few people recognised its importance.” said Vitalik Buterin, co-founder of Ethereum. We have now seen a huge rally towards this new Ethereum Improvement Proposal (EIP) being implemented, forever changing the current transaction fee models.

Before going over this new hard fork, let’s look at the current model.

Source: https://etherscan.io/gastracker

Prior to EIP-1559, Ethereum used an auction based model to decide on the price of transaction fees. This means that the more you’re willing to pay in gas fees, the quicker the transaction will be approved. Miners prioritise transactions with the highest bidders when deciding which transaction to include in the next block, thus effecting transaction execution. At the time of writing, the average gas price is 42 Gwei as you can see above. We can also see the confirmation time (secs) correlated to the gas price as well as estimated costs of interactions with DeFi protocols such as Uniswap.

Sources: https://duneanalytics.com/kroeger0x/gas-prices

One of the biggest problems with this model, is the unpredictability of gas fees. Users can’t plan for large fluctuations in the gas price, essentially guessing what miners will accept into the next block. Unless of course, you are staying up to date with every single NFT release/auction and have knowledge of the current bidding behaviour amongst users of the network.

Extensions like GasNow as well as browser wallets such as Metamask will provide rough estimates of the gas price, however not accounting for said bidding behaviour. If you use too little gas, your transaction may fail as well as if you bid too high, you may be overpaying for the transaction, in which case, the excess gas is not refunded. This can be frustrating, providing a bad UX and it is a lot of guess work for the everyday user.

Source: GasNow Extension

It is also important to note that there is no value accrual to Ethereum’s network, all the fees go to miners. EIP-1559 aims to solve these issues along with a few other improvements. With this implemented, a transaction requires three key pieces of information:

  • Base Fee amount
  • Priority Fee amount
  • Max Fee amount

The base fee is set by the network and is the minimum fee to get included into a block. This fee is always burnt.

The priority fee is also known as the miner tip. This is set by the user and paid directly to miners to incentivise faster processing.

The max fee is the most a user is willing to spend on a single transaction. Overbidding is no longer a problem as transactions can be guaranteed.

Max fee – (Base fee + Priority fee) = refunded to the user.

WILL ETH BECOME DEFLATIONARY?

It depends … Under the current Proof of Work, base fees of roughly 100-150 Gwei would need to be sustained to offset the supply issuance. Once we have the merge and transition to Proof of Stake, base fees of roughly 20 Gwei would need to be sustained to offset supply issuance. In our opinion, it is not likely we sustain these gas prices during PoW with the exception of NFT drops where gas can jump as high as 1500.

Source: https://ultrasound.money/

Above, we have the EIP-1559 London burn as well as the ETA for the merge & removal of PoW. Using the gas fee of 42 Gwei mentioned earlier, we can see that once Proof of Stake is implemented, ETH will in fact become deflationary. At an average gas price of 42 Gwei, the network will burn 4,200 ETH/Day.

Let’s assume the network is congested & gas fees are around 150 gwei as displayed below. The curve begins to flatten aggressively lowering supply, thus increasing scarcity. Once the merge is implemented (date TBA), this is when ETH truly becomes deflationary.

Source: https://ultrasound.money/

Another improvement is the adaptive block size which could help with scalability. Prior to EIP-1559, block sizes stayed the same and in the event that there is a sudden increase in demand, gas prices increase. After EIP-1559, the gas fees for that block are already determined, and should demand increase, the block size can expand and vice versa. This helps smooth out gas price volatility.

TL;DR : In summary, the benefits of EIP-1559 are:

  • The ETH network benefits from higher transaction volumes as these base fees are burnt, making Ethereum deflationary.
  • Adaptive block sizes can account for unexpected high demand across individual blocks.
  • Better UX as users can estimate gas costs & are refunded on overbidding gas prices.
  • Network security is advanced and helps prevent spam attacks against the network.
  • Potentially lower gas fees.
Source: https://ultrasound.money/

EIP-1559 will be implemented tomorrow on the 5th of August 2021 12:50 UTC. The activation of EIP-1559 is a major milestone for the Ethereum ecosystem and could be the beginning of “Ultra Sound Money” as we see more ETH being destroyed than created.

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INDICES MARKET OUTLOOK – 2 AUGUST 2021

With earnings being the main focus of July, we saw US Indices retreat from their new all time highs as FAANG earnings surprised many investors. Last week saw the NASDAQ, Dow Jones and S&P500 close at -0.84%, -0.12% and -0.10% respectively.

FAANG companies made an effort to warn investors about slow growth rates as well as lower margins due to economic activity slowly going back to normal. This, in addition to the Delta variant being responsible for 92% of new COVID cases reported, has investors nervous as the labour market recovery continues to be hindered. This brings our focus to Non-Farm Payrolls on Friday.

EARNINGS RESULTS JULY 2021

With August being known as a dry month in terms of volume and liquidity, this week’s risk events will be closely monitored as it could provide some clue as to where we could be heading. Obviously this week’s main focus will be NFP, but we also have Initial Jobless Claims and Unemployment Rate on Thursday and Friday respectively. Last week’s jobless claims data disappointed investors as it still shows a fragile rebound in the labour market and may strengthen the Fed’s Dovish stance.

FUNDAMENTALS FOR THE WEEK AHEAD

Technically, NASDAQ continues to make new all time highs every week. We saw the slight pullback on Friday on the back of FAANG earnings surprising investors. The bigger picture on NAS still shows upside however. While a technical pullback is still possible, we would need a fundamental catalyst to swing price in a certain direction. Since NASDAQ is still trading at new highs, it has almost no levels of resistance going forward. This week will most likely see investors adopting the “Buy The Dip” mentality, buying up any retracements. A break and closure above the previous highs around the $15 150 region could constitute continued bullish momentum until profit taking occurs.

NASDAQ 4 HOUR TIMEFRAME

The Dow Jones has been range locked for the last week, struggling to choose a true direction from that psychological level of $35 000. Fundamentally, the Dow has room to rise with banks and infrastructure being in focus and finally showing growth. A “Buy the Dip” mentality can adopted here as well as we await any retracements on the Dow to potentially take price higher. The psychological region of $34 500 looks very favourable as it lines up with our 50% Fib retracement region. Be weary of manipulation spikes down into $34 250 potentially.

DOW JONES 4 HOUR TIMEFRAME

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INDICES MARKET OUTLOOK – 26 JULY 2021

The Corona Virus Delta variant has brought fear to the equity markets for the last two weeks but that seems to be fading away once again as we saw the “Buy The Dip” mentality kick in last week with the equity market closing at new all time highs. NASDAQ and the Dow Jones closed +2.88% and +0.99% respectively.

There will be lots for traders to look out for this week on the micro and macro level as we have earnings being released as well as the Fed’s Interest Rate Decision and the US GDP. Investors will be keeping their eyes peeled for earnings reports as major technology companies such as Facebook, Amazon, Apple, Google and Microsoft are releasing their Q2 reports this week. Earnings optimism means margin for error is thin and the technology pandemic winners may see their revenue growth start slowing down due to the resumption of normal activity and the economy reopening. But on the other hand, should Q2 earnings beat their estimations, this could be the fundamental catalyst to send US equities prices even higher.

Q2 EARNINGS CALENDAR

Traders will also be listening in on the Fed’s Interest Rate Decision and the GDP on Wednesday and Thursday respectively. The Interest Rate is expected to stay unchanged but investors will be looking to gauge the pace of Fed tapering and potential adjustments to the pace of asset purchases.

FUNDAMENTALS FOR THE WEEK AHEAD

Since we have seen “Buy The Dip” mentality applied last week, NASDAQ has been on a continued bull run closing last week out at almost +3%. Volume might be weak leading up to Wednesday as investors will not expose themselves to too much risk before the Interest Rate Decision and as everyone waits for the Earnings reports. Since we are at all time highs, we could see some profit taking occur which would come in the form of a technical pullback. Should this happen, we can expect pullbacks into and around the $14 750 region before continued upside targeting $15 250. Should we see earnings beat their estimates, this will most likely result in upside on NASDAQ.

NASDAQ 4 HOUR TIMEFRAME

At the time of writing, the Dow Jones has once again managed to pierce that $35 000 psychological level but just doesn’t seem to have the buying pressure to break it and leave it behind. This will be the third time the Dow tests this level since May. Should we see market wide profit taking occur, this could also result in a technical pullback on the Dow potentially eyeing that $34 500 level once more before managing to break that psychological level of $35 000 to the upside with $35 500 being the next target.

DOW JONES 4 HOUR TIMEFRAME

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INDICES MARKET OUTLOOK – 19 JULY 2021

The Dow Jones, NASDAQ and S&P500 all closed the week out negatively at -0.58%, -0.97% and -0.99% respectively. With Jerome Powell and Inflation talk taking the spotlight last week, investors will be eyeing financial statements as earnings season is once again upon us.

Last week saw a lot of risk events with Jerome Powell’s speech at Capitol Hill taking the spotlight. The Fed Chairman used his two days to explain why the Fed will be retaining its dovish outlook. This in turn sent Yields lower as investors flocked to safety in the form of Treasury Bonds. At the time of writing, the 10 Year Yield curve is below 1.3%. Should we see continued downside on the curve, this could be the catalyst to send stocks even higher.

10 YEAR TREASURY YIELD CURVE DAILY TIMEFRAME

The current theme within the market for the weeks ahead will be earnings season. This week sees the likes of Twitter, IBM, Netflix and Intel reporting which could definitely bring some volume and volatility to NASDAQ.

This week sees the economic docket for the US slow down slightly as we have Crude Oil Inventories on Wednesday. Investors will be eyeing this in light of the recent OPEC meetings which took place as well as the Delta variant weighing on market mood. Thursday also brings Initial Jobless Claims to print as we continually try to gauge the employment rate in the US.

FUNDAMENTALS FOR THE WEEK AHEAD
EARNINGS CALENDAR

Technically, we have seen some bearish momentum for the first time in a while on NASDAQ which is perfectly normal in the bigger picture. Last week saw price printing a form of an evening star at All Time Highs before last week Friday continued that momentum and broke the ascending trendline. Price is currently falling into our deepest Fib retracement levels which could provide decent risk to reward setups. Should price break below the $14 550 handle, this would invalidate longs for the time being and would look to see what happens around the psychological level of $14 500.

NASDAQ DAILY TIMEFRAME

After taking a beating last week, the Dow has found a form of support around the psychological level of $34 500. Price is slowly approaching the ascending trendline which could provide a form of dynamic support sending price higher. If not, we have the Fib retracement levels in line with previous support to look for potential long positions. Once again, a break below the 100% Fib level would invalidate my long bias with $34 000 being the next area of interest.

DOW JONES 4 HOUR TIMEFRAME

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INDICES MARKET OUTLOOK – 12 JULY 2021

The Dow Jones, NASDAQ and S&P500 closed the week out at +0.3%, +0.76% and +1.13% respectively. Delta variant or Summer Doldrums?

Investors are anticipating a strong earnings season on the back of positive recent economic data releases. This in turn boosted market sentiment which sent the US 10 Year Treasury Yields lower last week. Yields dropped from the 1.4% region down into the 1.3% region before retracing slightly on Friday. This drop reflects that reflation hopes are on and there is a reduced demand for safety within the market (Yields are normally considered a “safer” investment than the stock market). Although the Covid 19 Delta variant has provided a slight speedbump in vaccine rollouts and new cases, economic recovery seems to be gaining pace. According to Factset, more blue chip companies are reporting a positive EPS (Earnings Per Share) guidance which is pointing towards the predicted strong earnings season.

US 10 YEAR TREASURY YIELDS

In terms of risk events this week, Tuesday brings us the CPI release. This is one of the favoured data points used to gauge inflation. This week’s main event will be Wednesday and Thursday as Jerome Powell will be delivering his Fed speech. As usual, Initial Jobless Claims as well as Retail Sales on Thursday and Friday will bring some volume and movement to the market.

FUNDAMENTALS FOR THE WEEK AHEAD

Technically, the Dow Jones has been ranging leading up to earnings season. Over the past few weeks, we’ve seen the Dow Jones form a Triple Top formation as price has not managed to break and clear the $34 900 handle showing sellers could be slowly taking control. This in turn could lead to downside in price in the week to come with targets being around the $34 150 region which is last week’s low respectively. Should price somehow manage to break this level of resistance at $34 900 (triple top formation), we could see new highs being printed on the Dow.

DOW JONES DAILY TIMEFRAME

NASDAQ has simply continued its bull run as investors are attracted to technology stocks during these kinds of market conditions. Last week saw a decline in price but we saw the “Buy the Dip” mentality adopted as price slowly grinded its way back up into the highs. Should the Prior Week High hold as resistance, we can expect a pullback perhaps into the ascending trendline to continually take price higher as NASDAQ targets that $15 000 region. A break below the Prior Week Low is not likely, but should it come to fruition, that could spark interest of a stock market reset just before earnings season.

NASDAQ 4 HOUR TIMEFRAME

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