5 Important Charts to Watch in April 2019

The month of March was relatively turbulent for equity markets when compared to the strong market surges of January and February. But as we look forward to April, stock markets remain on a solidly bullish trajectory, and appear poised to target a further potential recovery.

As of the end of March, the S&P 500 is not too far off its September all-time highs, and the technicals generally remain bullish. The benchmark index is on the verge of forming a 'golden cross', a bullish technical chart pattern that occurs when the 50-day moving average crosses above the 200-day moving average. Recently, the Dow Jones Industrial Average confirmed this same pattern, and has remained on track thus far to extend its strong rebound from December lows.

All of that said, though, serious global risks and the specter of slowing economic growth continue to place heavy pressure on the markets. Factors that continue to foster a very uncertain market environment abound. These factors include: ongoing political and economic chaos surrounding the Brexit process; concerns about still-unresolved U.S.-China trade deal negotiations; substantially slowing economic growth prospects in the U.S., Europe, China, and other regions; and falling government bond yields as central banks become increasingly dovish in line with dimming global economic prospects.

Here, we bring you our monthly '5 Important Charts to Watch' - markets and instruments that will likely be impacted significantly in April by the factors noted above.

As the last week of trading in March approached its close, the U.S. 10-year Treasury yield fell to a 15-month trough. Not since December 2017 has this benchmark government bond yield fallen to such a low level.

But this wasn't the only major development in bond yields in late March. The Treasury yield curve inverted. More specifically, the 10-year and 3-month Treasury yields inverted for the first time in more than a decade. An inverted yield curve occurs when long-term debt carries a lower yield than short-term debt. It's a relatively reliable signal of an upcoming recession, though the timing of such a recession is much less reliable.

The Fed's increasingly dovish outlook due to worries about declining economic growth continue to pressure yields. This situation is likely to get worse before it gets better, and Treasury yields could potentially see further downside in April.

The Shanghai Composite is China's most prominent benchmark equity index. It comprises all stocks traded on the Shanghai Stock Exchange, which is the largest equity exchange in the country. As of the end of March, the Shanghai Composite had risen by a whopping 24% year to date. This easily beats the S&P 500 and other major U.S. indexes.

Part of the driving force behind Shanghai's sharp rise has been the global surge in equities since the beginning of the year. But some of it was also due to optimism surrounding a potential U.S.-China trade deal, from which China stands to benefit even more than the U.S. Though there has been a prolonged period of shaky back-and-forth negotiations, any further positive developments in these critical talks may prompt an extended rally for Chinese stocks.

As of the end of March trading, the Shanghai Composite is close to year-to-date highs, but still in a tight consolidation pattern. With any breakout above this pattern in April, the index could next target the 3220 price area.

As of late March, gold's previously strong uptrend began to falter as the U.S. dollar continued to rally. Since the mid-August lows, gold has been on a strong uptrend, especially as the Fed became increasingly dovish in early 2019 and interest rate expectations declined significantly from late last year. When interest rates fall or remain low, non-interest-bearing gold tends to rise as it has less competition from interest-bearing investments.

Also helping to boost gold in the past several months has been its status as a safe-haven asset. Fears of global trade wars and economic slowdowns, among other risks and conditions, have also helped buoy the precious metal.

A primary factor limiting gold's rise, however, has been a strong U.S. dollar. Since gold is typically denominated in U.S. dollars, it is generally inversely correlated with the value of the greenback. Even if the Fed remains on its dovish trajectory, any continued dollar strength could place further pressure on the price of gold, potentially weighing it down towards the $1250 level once again.

In the last week of March, UK Prime Minister Theresa May lost another important Brexit vote in Parliament. This was May’s third attempt to pass a Brexit deal, and it ended in yet another crushing letdown for the beleaguered May. The entire Brexit process has been a political and economic nightmare for the UK thus far, and the situation is rife with ongoing conflict and uncertainty.

The market most closely tied to the ups and downs (mostly downs) of Brexit negotiations is the British pound, which has continued to fluctuate in line with shifting expectations and developments surrounding the UK's withdrawal from the European Union. The GBP/USD (British pound vs U.S. dollar) has been heavily pressured by Brexit. Currently consolidating in a holding pattern around both its 50-day and 200-day moving averages, GBP/USD continues to be the currency pair to watch as more Brexit developments unfold in April and beyond.

As equity markets have made a dramatic rebound and recovery from late December lows, the Volatility Index, or VIX, has come down sharply from its highs. The VIX, also known as the "fear gauge," is a primary measure of fear and volatility in the markets as measured by S&P 500 index options volatility.

As of the end of March, the VIX is not much higher than its year-to-date lows of mid-March. This signifies complacency in the stock market, and suggests that investor sentiment remains relatively calm. April is likely to bring some volatility-inducing events that could rattle markets and boost the VIX. But as long as the index swiftly reverts back below its long-term average (currently around 16.50, as measured by its 200-day moving average), equity markets are apt to continuing pushing towards the upside.