It was an extremely volatile week. Donald Trump’s win in the presidential election was a shock to the world. The turn around in stock markets and Dollar after the initial knee jerk reactions was equally impressive. DJIA ended at new record high of 18847.66 had registered the best weekly gain in fives years at 5.4%. S&P 500 followed closely too and both ended up 3.8% for the week. Long dated yields also surged with 10 year yield closing at 2.117, comparing to last week’s close at 1.783. Dollar index initially tumbled to as low as 95.88 but u-turned from there to close at 99.00 after breaching 99.11 near term resistance. Gold, on the other hand, suffered much as it soared to as high as 1338.3 initially after the election but reversed and closed at 1227.4, breaking out 1243.2 near term support. WTI crude oil was indeed rather steadily soft and extended recent fall to close at 43.12.
While markets were initially rocked by the uncertainties over Trump’s presidency, they quickly turned back to evaluate the possible paths of his policies. Investors could come to the conclusion that the policies in the coming years would be around lower tax, higher government spending especially on infrastructures, less regulations. Industrial and financial stocks benefited most from such expectations. S&P 500 industrial companies were up 8% for the week while financial stocks were up 11%. Meanwhile, the increased spending couple with lower taxes suggested that US government would become more in debt. Long dated bonds were sold off sharply on expectation of a surge in supply. The strength in stocks should have given Fed the green light to hike interest rate as scheduled in December. Meanwhile, the possibility of quickened inflation higher pushed Dollar up too.
While Dollar was overwhelmingly strong for the week, it should be noted that Sterling was indeed the strongest. The pound continued to ride on the recent turn in BoE’s stance to neutral. Meanwhile, there was additional boost from talks that Trump would be a better ally to UK than the Democrats in general. And, firstly, there would be a earlier and better trade US/UK trade deal. Secondly, the potential of US lowering its NATO commitments would improve UK’s position in Brexit negotiation. The Japanese Yen ended as the weakest major currency on strong risk appetite. That’s followed by Kiwi after RBNZ rate cut. And then Euro followed on uncertainty on what ECB would do after the current quantitative easing program ends next March.
Technically, DJIA’s strong break of 18668.43 confirmed long term up trend resumption. It’s just held inch below 61.8% projection of 17063.08 to 18668.43 from 17883.56 at 18875.66. Based on current momentum, such projection level should be taken out with ease. And that would put the terminal triangle case (from 15450.56) off the table. To be consistent with this case, DJIA should pick up further momentum and power through 100% projection at 19488.91 with daily MACD breaking the trend line resistance. In that case, we’ll be looking at next medium term projection level at 61.8% projection of 10404.49 to 18351.36 from 15450.56 at 20367.72.