Crude oil, China A50 caught in the carnage of golden week hangover

China’s markets shot out the gases in reverse on Tuesday, with traders seemingly disappointed that Beijing had not unveiled another round of stimulus. After a week’s long holiday with excessive gains throughout, the hangover now seems real. China’s A50 futures market fell as much as -16.8% by the day’s low before settling the day off -10%, during its worst day in seven years.

We're seeing a shakeout at the highs following a very strong rally. But when we reach the point of a rally where my neck hurts by looking at it, you could argue a pullback is overdue. Either way, it seems some are booking profits after exceptional gains over golden week, and this could deter others from stepping in to support the market immediately. And that paves the way for some chop around the top, if not a deeper pullback, for China's equity markets.

The crude oil rally faced attacks from multiple fronts on Tuesday, which saw prices tumble over 4% during its worst day in 20 and snap a 5-day winning streak. Oil prices within the commotion of China’s markets falling sharply when traders returned from gold week, booking profits at frothy heights amid disappointment that no further stimulus was announced. US oil production forecasts for 2025 were also lowered to 2.4% from 3.4% by the Energy Information Administration (EIA), with concerns of a retaliation attack from Israel on Iran also receding on Tuesday helping to weaken crude oil prices.

Events in focus (AEDT):

• 11:00 – RBA assistant governor Kent speaks
• 12:00 – RBNZ interest rate decision (-50bp cut expected)
• 00:15 – Fed Logan speaks
• 01:30 – FOMC Barkin, Fed Goolsbee speaks
• 01:45 – Fed Logan speaks
• 02:00 – FOMC Williams speaks
• 03:00 – Atlanta Fed GDPnow
• 03:15 – FOLM Barkin speaks
• 03:30 – Fed Jefferson speaks
• 05:00 – FOMC meeting minutes

China A50 technical analysis:

When you look at how aggressive the rally was on the China A50, an oversized down day at some point seemed inevitable. The A50 say nine consecutive daily closes above the upper Kelner band and rose a staggering 40% in the nine days. The trouble is, these always look obvious in hindsight and such FOMO-driven price surges can wreak havoc with bears trying to pick tops. But that bearish day has most certainly arrived, and bullish fingers most definitely burned.

I suspect we’re now in for some choppy trade where volatility could cut both ways, but not to the degree we saw yesterday as traders try to figure out the next real move.

The 4-hour chart shows support was found around the 2023 high, so at least a small bounce could be due. I doubt it will simply break above 15k for now (near the monthly S1 pivot point), so bears could be laying in wait for such a bounce to fade into.

Also take note that the 1-hour RSI (14) us below 50 yet not oversold and no obvious signs of a bullish divergence, and that leaves another price low on the cards. Unless China do unveil another round of stimulus. Until then, a break below 14k brings the 14,485 high into focus, and 13k near the monthly pivot point.

Crude oil technical analysis:

We find ourselves in a similar situation to the China A50 with WTI crude oil: An aggressive sellers day after a bullish move usually points towards choppy price action, well within recent ranges, as the market tries to discover where the buyers and sellers lurk.

However, in this instance we have the 200-day average providing support and a bearish trendline acting as resistance. The 4-hour chart also shows a bullish hammer which found support at the weekly S1 pivot, so like the China A50 the bias is for an initial bounce against Tuesday’s selloff, with the potential for bears to seek new entries at higher prices.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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