Week Ahead: How Will Geopolitical Risks Affect Global Markets, Oil Prices?
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- On Friday, US stocks fell on threats of war; on Saturday, one threat materialized
- Since Brexit vote, equity investors have continuously shrugged off geopolitical risk
- On Sunday, Middle East equity markets were bullish
- Oil risk to the upside, as tension mounts among largest producers
- RBA warns investors are not pricing in inflationary risk
After a rocky week in which the S&P 500 nevertheless gained 1.99 percent, Friday was a total bust.
The most widely referenced US benchmark retreated 0.29 percent for the day, dragged down by Financials, which lost 1.51 percent in value. If not for the fact that Energy shares outperformed, increasing 1.10 percent in value, the index would have suffered even greater losses. If William Shakespeare were an analyst today, his forecast for US markets—all major indices fell on Friday, including the Dow(- 0.50%), NASDAQ (- 0.47%) and Russell 2000 (- 0.50%)—would hardly be all’s well that ends well. Indeed, last week's final day of market action did not end well.
That may seem counter-intuitive. After all, the SPX gained a shade under 2.00 percent over the preceding five trading days, thus a bullish week. However, traders were not willing to stay exposed over a weekend, signaling a lack of confidence. With multiple domestic and geopolitical risks hovering on the horizon, who can blame them?
What clues can we glean from the supply-demand balance, expressed in the S&P 500 price action? The small H&S bottom on the four-hour chart (here, on the daily chart) has failed to break out.
It penetrated the neckline 0.42 percent but ultimately closed lower and below the neckline. The 50 dma (green) crossed below the 100 dma (blue), showing recent price data is weakening compared to older data, and both are right above the price, providing resistance, for good measure.
The much-talked about 200 dma (red) gave traders a scare almost two weeks ago, when the price closed below it for the first time since the initial shock brought on by the aftermath of the Brexit vote, in mid June 2016. That's at the lower boundary of the 3-week range.
On the other hand, both the MACD and the RSI suggest the price will continue to rise, completing the bottom. Should that in fact follow through, the 2,800 level comes into play; should that price penetrate, we’re looking at a march larger, double-bottom, that would render the price action since early February a base to tlete_a (alt="SPX Daily" />