4 charts describing markets’ reaction to Kim’s hydrogen bomb test. Gold appreciates. AUDJPY and N225 falls. EWY has elements of a reversal trade.
Gold gaps up after Kim’s hydrogen bomb test
During adversity, you will see who your true friends are; when financial markets go ‘risk-off’, we will find out what is truly safe haven because this is what market participants hold on to for safe-keeping. With this week chart of XAUUSD from mid-2008 to present, recall these facts:
- In a rising trend, price prints higher highs and higher lows.
- In a falling trend, price prints lower highs and lower lows.
- 2016 was a reversal year for Gold.
- New 52-week high printed in 2016 terminated previous falling sequence between 2013 – 2015.
If 2016 was the start of a new trend, we can expect a higher high this year coming from Gold. Price above 1376 will confirm our expectation. Note: We can’t really tell for sure whether Gold gapped up because of North Korea’s bomb test or because of this piece of news ‘China sees new world order with oil benchmark backed by gold‘.
- North Korea’s missile and bomb testing is nothing out of the blue.
- On the other hand, this oil contract priced in Yuan and backed by gold is totally new paradigm.
AUDJPY mirrors N225
I have written time and again about the observable correlation between AUDJPY and Asian stock indices. It appears that whenever there is stock market unrest, the Japanese prefer to repatriate their money back home causing an appreciation in the Japanese Yen. When AUD is involved, there is another dynamic i.e. the Australian Dollar’s strong propensity to rise and fall with the boom and bust (real or perceived) of the Asian economy. Therefore it should not be a wonder why AUDJPY chart looks so amazingly like the Nikkei 225. There is a high level of correlation here. I suspect that should new development from Korea rattle the markets anew, both are likely to find resistance and might even go down together. From a trading point of view, AUDJPY should be a better pick with it’s near 24/7 accessibility unlike the limited hours of the N225.
South Korean stock
EWY is a large South Korean stock ETF. It is now resisted by a 6-year high.
EWY now has to face multiple challenges:
- Saber rattling between North Korea and USA.
- Bearish technical signal
- Trump is seriously considering to end U.S.-Korea Free Trade Agreement (KORUS).
How strong is this bearish technical signal? There are at least two strong elements of a reversal trade out of five in this chart.
- Has any country or anyone behaved in an unexpected manner?
- Was there a major escalation?
- Have markets broken any key levels? I wrote about this last week and offered a simple way to tell.
- Are we going to see a repeat of last week’s Tuesday action i.e. fire and fury during Asia and Europe market hours, come US open, total reversal of mood followed by rally into high?
If past performance ever equates to future performance, answers appear to be 1. No. 2. No. 3. No. 4 Yes.
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.