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Tesla

Tesla's stock price last Friday jumped from $673.42 to $681.79, gaining 1.24% after the end of the session.  

Tesla stock showed signs of range contraction during the day, making an intraday range from $666.36 day low to a day high of $690.69, the narrowest in the last seven days. The stock volume was 79% of the average volume on the previous trading day, down by 11 million shares and $14 billion in value. This low volume might signify possible price changes for the subsequent trading sessions. 

For a longer-term view, Tesla's stock price, which is currently on a downtrend, is down by 35% this year, slightly more than the Nasdaq Composite (at -30%). Tesla stock might continue this downside as the market digests its quarterly report for the second half of this year. Tesla reported just over 250,000 deliveries, its first decline in deliveries since quarter one, 2022. 

On the technical side, looking at the 4-hour chart, a trend channel indicator shows a clear downtrend as candles create lower highs and lower lows.  

Tesla
TSLA 4H

The price, now sitting at the top of the falling trend, might see a continued move to the downside and create another lower low at $560 after breaking the $620 support and potentially targeting the $450 price point. However, a break to the upside on the $785 resistance might indicate a potential short-term buy and target at least $865 to fill the gap. Watch for trading in the tight range of $734 and $784 in this case.  

Price rejecting at the $785 resistance or $620 support level means that we will see an extension to its period of consolidation in this price range, which it has held since May 11, 2022.  

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USDMXN made a rebound this week as the USD restarted its momentum to the upside. 

The US dollar has found a mild bullish impetus in Jerome Powell’s ECB forum appearance where he reiterated his hawkish outlook for the US economy. Powell believes that the US economy remains well positioned to absorb tighter credit conditions while avoiding recession and rising unemployment. 

Looking at the 4-hour chart, we can see that the USDMXN price is firmly in a consolidation zone between the 61.8% and 50.0% Fibonacci levels. While spending most of the past few days testing the 61.8% level, leading to an eventual strong rejection, the pair is now looking like it wants to test the 50.0% level, possibly forcing a downtrend.  

USDMXN
USDMXN 4H 

Look for a rejection of the 50.0% level, and the creation of a lower high on the downtrend. A breakthrough on its first real test of the 50.0% level would see an emboldened bearish trend encountering the strong 38.2% level. Overcoming the 38.2% level will be no small task for the pair but doing so would see the USDMXN confronting the strong demand zone at around 19.40 and 19.70. This is where you might expect a stubborn level of support, compelling a bounce back to the upside and the creation of the lower low.  

On the other hand, a break on the 61.8% Fibonacci level to the upside might continue the bullish rebound as viewed on the 4-hour timeframe. In this scenario, the pair might continue to the strong supply zone between 20.4 and 20.7. 

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Crude oil experienced a significant drop in price over the past two weeks. This week, however, it appears the energy commodity is bouncing back to the bullish side. 

The fall in the price of oil since May was triggered by the fear of a recession, in the US in particular, and numerous central banks’ moving against inflation with rate hikes, leading to slowing economic growth.  

This, however, has been mitigated by the fact that the global economy is now facing a lack of supply on the energy front. As global demand closes in on pre-pandemic levels there are indications of further support in demand for fuel.  

Supply concerns have cropped up as a result of Saudi Arabia and the UAE running at near oil production capacity and the political unrest occurring in both Ecuador and Libya. Given that these countries are some of the few that could fill the void left by the Russian sanctions, any hint of disruption may play a role in supporting or surging oil prices.  

On the other hand, US President Joe Biden last week called on Congress to suspend the Federal gasoline tax for 3 months. President Biden, in calling for gas tax holiday, further stated he wants merchants to pass on the entire reduction to consumers and the industry to refine more crude oil into gasoline to increase supply.  

On the technical side of Crude oil, after the conclusion of the OPEC meeting, we might see an increase in volatility in oil prices.  

WTI Crude oil, 1D, with RSI indicator

On the daily chart, we can see a clear uptrend as the price bounces around its trend channel. Price made a rebound at around 104.0 on the lower trendline creating a bullish structure. As the price heads towards a minor resistance of 114.70, a break above this area could potentially send price towards 120.20 and possibly retest 124.9 before bouncing back around the upper channel for a possible price correction respecting the current trend indicator. 

One could also notice a bullish hidden divergence on the RSI as it creates a lower low while the candle stick chart creates a higher low on the daily time frame signaling for a potential turn to the upside. Any shift in fundamental factors, however, might negate this bullish indicator. 

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Revlon

With US stocks officially entering the bear market recently and with concerns that the next recession is upon us, companies are walking another tightrope. 

Consumer goods companies including big multinational brands have employed various measures to protect their profit margins and cushion the impact of skyrocketing inflation and weakening consumption. Even household name brands have not been spared from these factors. 

Revlon goes bankrupt 

Iconic beauty brand Revlon (NYSE:REV) filed for bankruptcy protection almost two weeks ago as it grappled with a sizable debt, supply chain challenges and rising inflation, it said. 

The 90-year old beauty brand is also struggling to keep up with competition from emerging brands. Although Revlon’s president and CEO Debra Perelman said consumer demand for the company’s products remains strong, the group has faced challenges in attracting younger customers. 

Younger shoppers tend to prefer makeup lines associated with celebrities like Rihanna and Kylie Jenner, according to The New York Times

Revlon’s stock fell to an all-time low on June 13, closing at US $1.17, following its bankruptcy announcement. Since then, it appears that REV has become a meme stock, as growing short interest spurred buyers to take notice, and REV now trades above US $5.50. 

Revlon
REV, 1D, with Short interest indicator 

Kellogg’s splits into three companies 

Kellogg Co. (NYSE:K), another household staple, surprised the markets recently as it announced a three-way split as it overhauls its operations to focus on its snacks business. 

The brand, known for its breakfast cereals, Pringles and Pop-Tarts, will separate into three independent publicly listed companies. The company will spin off its cereals and plant-based businesses from its snacks business. The cereal and plant-based units only accounted for about 20% of the group’s net sales in 2021. 

Kellogg’s chairman and CEO Steve Cahillane said all three businesses have significant standalone potential and an enhanced focus will allow each unit to better direct their resources towards their own strategic priorities. 

The company’s move came as its core cereals business witnessed stagnating sales in the US as people go for different breakfast options, CNBC said, adding that Special K, Froot Loops and Rice Krispies, which had been Kellogg’s foundation, are no longer the company’s growth drivers. 

Kellogg’s stock surged to an over one-month high on Monday, less than a week after its spin-off disclosure. 

Tesla loses billions 

Silicon Valley-based car giant Tesla (NASDAQ:TSLA), which many consider as a tech company rather than a carmaker, recently acknowledged that it is losing “billions of dollars” from the global battery shortage and supply chain disruptions in China. 

Tesla operates a ‘gigafactory’ in Shanghai, which was shuttered for weeks due to the COVID-19 lockdown in the city. 

Aside from the disruptions caused by the lockdown, Tesla is also facing challenges in procuring batteries to power its cars. The company recently hiked the prices of its China-made Model Y due to the higher costs of the raw materials included in batteries. 

Tesla CEO Elon Musk also revealed that the company’s newest car factories in Texas and Berlin are losing money “because there’s a ton of expense and hardly any output.” 

“Getting Berlin and Austin functional and getting Shanghai back in the saddle fully are overwhelmingly our concerns. Everything else is a very small thing basically,” Musk said. 

Tesla investors appear to have taken the news in their stride, with TSLA stock price hugging close to US $700 per share, and the Chaikin's Volatility Index not indicating any abnormal change in daily price ranges. 

Revlon TESLA
TSLA, 1D with Chaikin's Volatility Index

ASOS trims outlook on inflationary pressures 

There is also no escaping the impact of inflation for British fashion and cosmetic retailer ASOS (LON:ASC), which had to lower its full-year revenue outlook, citing “market volatility and an increased returns rate.” 

The company now expects its full-year sales to grow between 4% and 7% year over year, down from its previous forecast of between 10% and 15%. 

“This inflationary pressure is increasingly impacting our customers shopping behavior. It is too early to tell for how long the current pattern of customer behavior will continue but we are taking swift and decisive steps to minimize the impacts,” ASOS’ Chief Operating Officer Mat Dunn said. 

ASOS shares slumped to an over decade low of ~GBX 780.0 on June 16 in London shortly after the company slashed its guidance. 

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As fears that a recession is just around the corner for the US, some economists are warning that Australia could follow suit. 

Some, however, remain bullish on the Australian economy due to high household savings, strong commodity exports, accommodative government stimulus and a robust pipeline of residential building constructions. 

Emerging from pandemic-induced recession 

The Australian economy recorded its worst single quarterly economic contraction since the 1930s Great Depression in the second quarter of 2020. Like many countries, the economy was hit hard by COVID-19 restrictions in the first half of 2020. 

The country emerged from that recession in the third quarter of 2020. Australia was among a few that managed to bounce back quickly as the government relaxed restrictions, fueling a recovery in consumption. Household spending contributed the most to the overall recovery as the easing of lockdown measures unleashed pent-up consumer demand. 

Delta derails recovery 

The economy continued on its recovery path until the third quarter of 2021 when Australia’s GDP contracted due to measures imposed to prevent the spread of the Delta variant of COVID-19. Household spending was hurt by local governments’ move to reimpose curbs. 

Australia rebounded in the fourth quarter as Delta-related lockdowns were lifted towards the end of 2021. 

"Consumers enthusiastically returned to discretionary spending following the end of delta-related lockdowns,” Australia’s statistics official Ben James said at the time. 

The Australian economy has swung from short periods of downturn to quick recoveries as soon as governments lift border restrictions and other curbs after containing local outbreaks. 

But as global inflation shocks and interest rate hikes by other central banks prompted the Reserve Bank of Australia to also take a hawkish approach to tame inflation, many experts are warning that the country could face another economic downturn. 

Brace for more tightening 

Earlier this month, the RBA raised its official cash rate by 50 basis points to 0.85%, surprising the market that had predicted the rate hike at 25 or 50 bp. 

RBA Governor Philip Lowe last week warned of more tightening in the months to come as the monetary policy board believes the current rate is still “very low for an economy with low unemployment and that is experiencing high inflation.” 

Australia’s unemployment rate remained at a record low of 3.9% in May, while the country’s first-quarter inflation rate accelerated to a 20-year high of 5.1% from 3.5% in the fourth quarter of last year. 

Recession likely to happen 

As commodity prices continue to skyrocket and as the central bank pursues a hawkish stance, BetaShares Chief Economist David Bassanese said there is a 40% chance that Australia could enter a recession within the next 12 months. 

“When the US sneezes, we catch a cold. The local share market will not be immune to further Wall Street weakness, especially as we also face uncomfortably high inflation and likely aggressive RBA rates hikes in coming months,” Bassanese said in a recent note. 

The economist noted that the local stock market will likely follow the US into bear market territory in the coming months. 

AMP Capital economist Diana Mousina last week said the high inflation environment is adding to weakness in consumer spending. AMP Capital lowered its GDP growth expectation for Australia this year to 2.7% from 4%. 

Mousina, however, said the strength in residents’ accumulated savings and supportive fiscal and monetary stimulus will likely keep the country’s economy from collapsing. 

“A lot of positives” 

This was echoed by RBA's Lowe last week when he played down worries over a looming recession in Australia, saying he doesn’t see a recession on the horizon. 

"Australia has a lot of positives… But if the last two years have taught us anything, you can't rule anything out,” the RBA governor said. 

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The Reserve Bank of New Zealand (RBNZ), showing concern about inflation, made another 50bsp hike during May taking its Official Cash Rate to 2.0%. The hawkish tone and actions of the RBNZ paired with fears the US economy could tip into a recession by the end of the year have helped the NZD regain some composure over the past couple of weeks.  

The NZDUSD made a significant bounce at around 0.62000 after its descent during the first few weeks of the month. Now, the NZD is showing some sign of weakness as it again attempts to breach the 0.63100 resistance level. 

During last week, we saw mixed data for the Kiwi dollar. The Business NZ Services Index showed a significant increase of 55.2 versus the previous data of 52.2, which indicates a stronger expansion in the services area. But on the other hand, Westpac Consumer Sentiment recorded the lowest reading ever of 78.7 since the survey began in 1988 which shows pessimism towards economic growth and low consumer confidence. 

NZDUSD 1D 

On the daily chart, the Williams Alligator Indicator is showing a strong downtrend signal as the price stays below the green 5-period moving average (alligator’s lips). While the the red 8-period moving average (alligator’s teeth) and the blue 13-period moving average (alligator’s jaw) are separated by a large distance giving us another strong bearish trend signal.

However, a staunch support level might appear at the 0.62100 area. Given the fundamental analysis and a strong downtrend signal from the alligator indicator, a possible break out to the downside below the strong support zone may push the pair to the 0.60000 psychological price area.  

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bear market

Wall Street has officially fallen into a bear market as investor sentiment is hammered by soaring inflation, rising interest rates and worries about a looming recession in the world’s largest economy. 

A bear market occurs when a stock index like the S&P 500 falls by 20% over a sustained period from a recent high. Conversely, a bull market happens when stocks rise 20% from a recent low. 

On June 13, the S&P closed in bear market territory for the first time since March 2020, as it slipped 3.9% to 3,749.63, its lowest since March 2020, and the second bear market of the pandemic era. The S&P sank deeper on Thursday, June 16, to close at a new low since December 2020.  

2020 market crash 

The last time that US stocks entered a bear market was in March 2020 at a time when many nations implemented lockdowns to prevent the spread of COVID-19 cases. That period marked the first time in 11 years that the Dow Jones Industrial Average entered a bear market, with the S&P 500 and the Nasdaq following suit.  

Stocks shed a third of their value in 33 days at the time, according to data compiled by Ed Yardeni, an economist who tracks stock swings. It took six months for the S&P to recover, helped by government stimulus and policy actions by the Federal Reserve, according to The New York Times

Not a bug in the system 

During bear markets, investors — of stocks, cryptocurrencies, and 401k plans — become more anxious and make the common mistake of liquidating their assets over fears that a rebound would be unlikely.  

While fear of losses are understandable, investors should know that bear markets, crashes and corrections are inevitable and are all a feature of financial markets and not a bug in the system.  

There have been 14 bear markets since the World War II, including the current one, and recoveries take 23 months on average, The Washington Post reported last week, citing Sam Stovall, chief investment strategist at CFRA. 

"These things have to happen every once and a while for the system to function properly and wash out the excesses,” fund manager Ben Carlson said in his book called A Wealth of Common Sense. Carlson said investors have to mentally prepare themselves for dealing with losses. 

Enduring bear markets 

Long-term investors, such as those who ought to keep their investments for retirement purposes, may take advantage of the current bear market to buy the dip as stocks tend to offer strong returns in the long run. 

Morgan Stanley last month released a list of some high-quality stocks to buy to weather the bear market. 

The list includes Abbott Laboratories (NYSE:ABT), The Coca-Cola Co. (NYSE:KO), Linde plc (NYSE:LIN), Becton, Dickinson and Company (NYSE:BDX), Johnson Controls International plc (NYSE:JCI), Anthem Inc. (NYSE:ANTM), The Procter & Gamble Company (NYSE:PG), Comcast Corp. (NASDAQ:CMCSA), Exxon Mobil Corp. (NYSE:XOM), and Mastercard Inc. (NYSE:MA). 

The bank kept an Overweight rating on all these stocks. 

However, dip buyers should not fall victim to temporary bear market rallies. Rallies in the middle of bear markets are common. 

Divesting stocks during a bear market is also common as it helps investors stem further losses, although the move could prevent them from recouping losses and cashing in on future gains.  

Chad Langager, co-founder of Second Summit Ventures, suggests diversifying portfolios between a variety of asset classes, not just the stock market.  

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Recession

Nearly 70% of academic economists recently surveyed by the Financial Times in partnership with the Initiative on Global Markets at the University of Chicago’s Booth School of Business expect the US economy to fall into a recession in 2023. 

Of those that expect the next US recession to begin next year, most predict the downturn to start in the first and second quarters. 

Signs pointing to a US recession 

In the first quarter of this year, the US economy shrank 1.5% year over year, the first drop in GDP since the second quarter of 2020 at the height of the lockdowns. And while many economists expect a recovery in the current quarter, uncertainties continue to cloud their outlook due to geopolitical issues and supply chain bottlenecks that can be partly attributed to the lockdowns in China. 

While the US unemployment rate in May was steady for the third straight month at 3.6% and non-farm payrolls rose by 390,000 last month, some Fed officials fear that their efforts to counter inflation by raising interest rates may lead to higher unemployment, The Wall Street Journal reported last week. 

“We definitely could see unemployment moving up somewhat, but not in a huge way,” New York Fed President John Williams told reporters over a month ago. About a week later, Powell told WSJ in an interview that achieving a “soft landing” does not mean that the unemployment rate needs to remain at 3.6%, "which is a very, very low rate.” 

Former New York Fed chief Bill Dudley in early May said it is “very, very unlikely” that the Fed can tame inflation without sparking recession as the central bank still needs to push the unemployment rate. 

Getting unemployment to just 4.25% would be a "masterful performance by the central bank,” Fed governor Christopher Waller said in a speech less than a month ago. 

Taming inflation without a recession 

While many experts believe the probability of a recession is increasing, some are still hopeful that the Fed can achieve its inflation targets without a recession, citing the continued strength of the labor market and more than $2 trillion in excess cash on household balance sheets, according to Bloomberg

Moody’s Analytics chief economist Mark Zandi is optimistic that the Fed can pull it off. 

“I still think we’re going to navigate through without a recession. But obviously it’s going to be very, very tight because risks are very high,” Bloomberg quoted Zandi as saying. 

Former Fed official and Deutsche Bank economist Peter Hooper was among the early ones to predict a recession, although he says he can still see some scenarios for avoiding one, while Goldman Sachs Chairman Lloyd Blankfein, in a tweet earlier this month, said riskier times are ahead, but the economy “may land softly.” 

"Dial back a bit the negativity on the economic outlook.  If I’m managing a big company of course I’m prepping for the worst. But the economy is starting from a strong place, with more jobs than takers, and is adjusting to higher rates,” Blankfein said. 

The US is set to release its advanced estimate for second-quarter GDP next month, which would provide more hints into whether or not the world’s largest economy is set to log its first economic downturn since the Great Recession between 2007 and 2009, which was the longest downturn since the Great Depression of the 1930s. 

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MACD

This year has been no joke for the US stock market.  

Of the 24 weekly candles that make up this year's chart on the S&P 500 (SPX), only 7 have finished bullish. The Dow jones Industrial Average (US30) and the Nasdaq Composite (NAS100), the US’s 2 other major indices, have followed similarly in 2022. We have not seen drastic falls like this in quite some time. Even with the sharp decline experienced during the beginning stages of the pandemic in 2020, it did not last as long as its current state of decline.  

The US Federal Reserve raised its benchmark interest rates by 75-basis points last week, their largest single hike since 1994. That action by the Fed helped push stocks down further. But not before one session of growth, on the day of the announcement, which was attributed to investor confidence that the Fed is taking inflation more seriously and is willing to implement drastic measures to settle the economy. 

Looking at Nasdaq and the SPX weekly charts these are a couple of things that stick out. One thing is the drop both indices made during the spring of 2020 when the pandemic hit the market. While the S&P 500 made a lower low, the NAS100 did not. Here the Nasdaq was tipping its hat to the strength it would show over the next year as its percentage gains outperformed the SPX.

But as the saying goes, the bigger they are the harder they fall, and we now have the NAS100 down 30% year-to-date, while the SPX is down 23%. But does the MACD indicator suggest that these indices might pull up even with one another in the future?

MACD applied to NAS100 and SPX 

The Moving Average Convergence Divergence (MACD) is one of the most popular indicators used by stock traders. 

MACD
NAS100 1W

The histogram portion of the MACD is an indicator for momentum by visualising the divergence of a short-term and a long-term moving average. In the MACD applied to the charts below, we can see the red histogram bars possibly shrinking in comparison to the last push down in the NAS100. As prices are still falling heavily, this may indicate that momentum is slowing. For the SPX, the red histogram bars are effectively flat, if not growing slightly. The question that springs to mind here is whether the SPX downward momentum is about to outpace the NAS100? 

MACD
SPX 1W

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GBPJPY

The Sterling has appreciated almost 8.5% against the Japanese yen since May 12, and the steep climb may have begun to look overdone as the price retraces back for the past days.  

BOE vs BOJ 

The Bank of England (BOE) hiked its benchmark interest rate by 25-basis points during its policy meeting on Thursday to balance the risk of high inflation, but the concern that the UK economy may face a considerable risk of stagflation particularly as consumer confidence falls to record lows remains. UK GDP for April also posted a surprise contraction of 0.3% marking its second consecutive month of negative growth. Political uncertainty and the dovish tone seen in their previous meeting with all these factors may have a negative impact on the GBP. 

The Bank of Japan (BOJ) is up next with its policy meeting to take place in the lead into Friday. Japan’s finance minister Shunichi Suzuki said this Tuesday that they are monitoring the forex market with a greater sense of urgency and is poised to act if necessary. The BOJ’s shares concerns with the government over JPY’s rapid depreciation and potentially judging JPY weakness as no longer positive for Japan’s economy. 

Technical perspective of GBPJPY 

Looking at the current price action on the daily chart, we can see that a double top pattern with a bearish RSI divergence hitting the upper trend line resistance of the WM channel gives us a signal of a bearish pullback and is now currently sitting at the middle trend line which acts as a minor support. A sustained break at this point could mean the pair potentially target a lower trend line area of the WM channel at around 156.50 area. 

GBPJPY 
GBPJPY 1D

Looking at the bigger picture, we can see that the current trend is still slightly bullish even in a case of deep pullback towards 156.50 area, and a long-term bullish signal will be if the pair bounces back to WM channel support zone. 

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