Technical analysis: China cracks down again, Evergrande escalates, and the FOMC

Over the course of the last week, we saw several major headlines moving the markets. Arguably, the most important of these was the FOMC meeting and statement which took place. What came out of this meeting was the projection that the United States will start to taper its bond purchases towards the end of the year, perhaps even as soon as November. Compared to the ECB and even the BoE, this is tapering at warp speed. Furthermore, the Federal Reserve now anticipates that it will be raising interest rates sometime during the end of next year.

Another mammoth market-shaking moment came from China with the news that the country has continued to crack down on crypto. While it has not made it illegal to hold crypto, it has made it impossible to transact in crypto. 

Yet another big headline came from China with the Evergrande debacle. China has been in a tricky spot, on the one hand, it likes to punish its naughty children and teach them lessons, in this case, that reckless borrowing behavior cannot be condoned. On the other hand, it could not sit back and watch the company sink the markets and local investors. In the end, it has supported the property giant, and covered local bondholders, but has decided to leave out foreign bondholders from the equation. This story will likely stay on the agenda for a while. 

With all of that, there has been a lot of noise over the past week in the markets, but ultimately it looks like risk appetite returned by the time we headed into the weekend.

Crude Oil (US oil)

The West Texas Intermediate Crude Oil market, or the US oil market, has initially pulled back during the course of the week but found enough support near the $70 level to turn around and rally again. At this point, the market looks as if it is trying to break out to the upside again, perhaps making a fresh high. 

After an initial pull back, USOIL rounded off the week near the $70 level. Source: Exness Terminal

Most pundits on Wall Street believe the market is going to go looking towards the $80 level over the longer term, and there is nothing on this chart to suggest that perhaps oil is going to turn around, and most clearly the 50-week EMA has shown itself to be rather supportive.

US Dollar Index

The US dollar Index has gone back and forth during the course of the week again, testing the 93.50 level. If it were to break above the 94 level, then it is very likely that the US dollar will continue to strengthen against most currencies. It will also have a bit of a knock-on effect on the precious metals and commodities markets, and it is worth noting that silver and gold look very threatened at this point in time.

S&P 500

The S&P 500 has fallen significantly during the course of the week, but then turned around to form a hammer. This is interesting, considering that the FOMC meeting in the middle of the week had the Federal Reserve talking about tapering by the end of the year, and perhaps even raising rates in 2022. That being said, the market is still very much in an uptrend, as the 50-week EMA has offered significant support.

S&P500 on an uptrend. Source: Exness Terminal

On a break above the candlestick from the previous week, then it is likely that the market will go looking towards the 4,550 level, which was the most recent high. The index certainly has been in a strong channel for quite some time, and therefore it is likely that it will eventually find its way towards the 5,000 level. On the other hand, if it breaks down below the candlestick for the week, then the market may very well go looking towards the 4,200 level.