Equity markets sell-off
Global equity markets were hammered last week across the board as inflation fears and concern over higher interest rates intensified with bond yield rise. Each of the seven indices tracked below was down for the week (January 29 - February 4).
In the U.S., the S&P 500 Index fell by 3.9% for the week to close at 2,762. That’s the largest one-week decline in two years. Nevertheless, given its strong start to the New Year, the S&P remains up by 3.3% year-to-date. The Index just finished a 5.6% advance in January, its highest start to the year since 1997.
Harder hit was the German market, with the DAX down 4.2% for the week to close at 12,785, its worse week in almost two years. Bearish sentiment was partly driven by higher yields on German bunds, which rose to two-year highs, while Deutsche Bank losses were reported to be higher than anticipated by the market.
Japan’s Nikkei was the strongest performer, down 1.5% to end at 23,632. The Bank of Japan intervened in the market to halt rising bond yields. Japan was followed by Hong Kong’s Hang Seng Index, which dropped by 1.7% to end at 32,602. The Hang Seng remains a top performance year-to-date for a 9.0% gain.
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In the bigger picture, the Hang Seng is going strong, having broken out above the 2007 high of 31,958.4 three weeks ago. At the same time, it broke out of the top of a multi-month rising trend channel. Each is a sign of strength. Nevertheless, in the near-term, it looks like it’s heading for a rest, even if it doesn’t last long. First, is the change in the pattern of consecutive positive weeks of performance, and then there is the 14-week Relative Strength Index (RSI). This momentum indicator was the most overbought since the prior record top in 2007, reaching a high of 82.75 two weeks ago. Further, just shy of the recent top is the confluence of two harmonic ratios, derived from prior swings.
Cryptocurrencies: Down across the board
Cryptocurrencies had a tough week, as most have since the start of the year. Out of 211 cryptocurrencies, only four were positive for the week, while the eight cryptos tracked below declined from a little over 10% to more than 26%.
Bearish sentiment was driven by a number of factors including:
Worries about tighter regulation.
India announcement on plans for much tighter restrictions.
Major banks such as Citigroup, JPMorgan and Bank of America banned purchase of cryptocurrencies with their credit cards.
Facebook ban of cryptocurrency and ICO ads.
Premium for Bitcoin in South Korea drops.
Japanese authorities perform an onsite inspection at Coincheck subsequent a robbery of almost $500 million of NEM coins.
Nevertheless, a number of coins had classic bullish hammer candles formed on Friday, February 2, with further strength seen by Saturday, February 3, as price moved above the Friday highs. The hammer is a one-day reversal pattern that is most reliable following a sharp and protracted decline, as we’ve seen recently with most of the cryptos