Dow, S&P 500 Post New Near-Term Lows
Last week, global stock markets saw increased volatility to the downside and the Dow Jones Industrials index posted its worst weekly performance in more than a year. But declines moves were not isolated to the US, as some of the biggest losses were seen in emerging markets. One of the biggest stories in global equity markets was seen in India, as the country’s central bank initiates policy measures to adjust
a widening current account deficit and stop the bearish momentum seen in the rapidly depreciating rupee. Stock markets in India have matched some of the broader negative trends seen in emerging markets so far this year, as one of the biggest bear markets in an otherwise positive year for stocks.
But the negative moves seen last week occurred in both developed and developing regions and were based on two factors. First, we have started to see weakness in corporate earnings figures reversing the positive trends that were seen in the earlier parts of the season. In the US, two of the most recent examples could be seen in Wal-Mart and Cisco and the fact that these companies represent entirely different industry sectors is discouraging for markets as a whole.
In addition to this, we have the enhanced possibility that the US Federal Reserve will begin to cut back on stimulus programs and undercut one of the main drivers for stock values in the first half of this year. Because of this, spread betting traders will need to pay special attention to public comments released by voting members of the Fed, in order to determine the extent to which stimulus programs will be reduced.
The S&P 500 is has confirmed the bearish call we made last week, with prices seeing big declines below the 1650 area before the end of last week. This call was based on the head and shoulders pattern that had formed on the medium term charts, and the confirmation created by last week’s neckline break suggest that the S&P 500 is now a sell on rallies. Initial resistance can be found at 1670, and this area can be used to enter new sell positions.
The FTSE 100 broke some key areas of support in last week’s trading after pushing through the 6460 level. Bias here is now again to the downside, with the next bear target seen at 6340. This area is a resistance turned support level, and we do not expect to see any real buying until this area is tested.
The DAX was the best performer of the three central stock indices, with overall gains more subdued. Prices tested support at 8310 and made a moderate bounce from there, so the total bias is positive as long as this level holds. Spread betting traders can take long positions in the DAX but stop losses should be kept relatively close to 8300, as any downside break here will likely lead to deepening losses.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.