Markets around the globe have come to a brink. The first thing to watch here is large techs behavior.
Chart 1. Apple’s stocks
Apple is a bright example. It has been traded within an uptrend. On 13th of Dec it reached the top range bound and made a dead cross. This does not necessarily mean something negative, it is not a good sign either, though.
Recent PPI readings (0.8% monthly final demand versus 0.5% expected) add to pro-correction bunch of factors.
At this point the behavior of the most risky assets is important. Among them are ARK techno shares ETF and XBI ETF — both reflecting the investors’ attitude towards startups without established business model. Chart 2 shows ARK, XBI is traded with the same pattern. Most risky assets have been in a negative trend since February. Now they are fluctuating slightly above the trend’s support level.
Chart 2. ARK techno stocks ETF
If big techs correction moves on, risky assets will put under pressure. It is not likely that ARK or XBI or anything of that kind would remain stable or even grow while big names are falling. So, the risk of breaking the support level is high. This, in turn, can be contagious — just like NASDAQ was in 2000. Risky stocks have not broken their levels so far, therefore no signal exists. This situation must be in focus, though, as it can cause a significant market move.
Another critical point is Turkey. Chart 3 shows Turkish Lira in logarithmic scale. It has devalued reaching the top of its range. What worries on this Chart is that the devaluation move is not finished yet from a technical point of view. Currencies generally reach critical levels with extremely high volatility, like it was in 2018. Now the volatility is modest, this creates a room for a further step.
Chart 3. Turkish Lira
Turkish CDS market reveals the same patern:
Chart 4. Turkish CDS
The fundamental reason of the Turkish market weakness is extremely soft monetary policy conducted by the Government. President Erdogan recently confirmed that low rates are for long, therefore no policy changes are expected. Turkish FX reserves are at much lower level than in 2018. Being coupled with dangerous global markets patterns this turns Turkey into a place to avoid.
It is likely that markets will choose their rout before the New Year. In case the risky assets cannot break their supports Christmas rally is possible. Otherwise, the year closure will be spoiled.
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