S&P 500 Hits New Record Highs After Positive Earnings, Economic Data
The S&P 500 rose to a new all-time high this week, as strong corporate earnings and improving economic data continue to support the argument for a global recovery. Trading activity was shortened because of the Easter holiday (rare to see a trading holiday fall on a Friday). Major events for the week included the release of US GDP figures (which showed an increase of 0.4%), and 4th quarter earnings from Research in Motion (BBRY). Most of the major stock indices are trading at (or near) their highs for the year, so the wider trends are clearly positive as markets largely shrug off the external uncertainties that have been created in Europe.Significant economic data from last week was seen with the US Durable Goods orders, and the Case/Shiller Home Price index. Durable Goods rose at the fastest rate in 5 months, and the housing data showed the biggest yearly increase since the middle of 2006. These trends could continue next week, as the Consumer Price Index (CPI inflation) data will be released from both Germany and the Eurozone as a whole. Traders will be watching for weakness in consumer price data to lead to suggestions the European Central Bank might still reduce interest rates to stimulate the economy. We will also see this month’s Non Farm Payrolls report out of the US, and the latest interest rate meeting from the Bank of Japan.
The S&P 500 rose above its November 2007 highs, to reach a new record close in the 1570 region. The long term uptrend in the index remains intact but now that we have seen prices officially print the new high, we might see some profit taking as investors capitalize on closing positions at the higher levels. Contrarian traders can take the reverse view, however, selling rallies as downside risk far outweighs upside potential at this stage. Now that we are at all-time highs, there is no historical resistance to watch but when looking to the downside, first support comes in at 1560, followed by 1545.
Despite the broader strength in stocks, the FTSE 100 is starting to look top heavy after hitting resistance at 6480. This is not altogether surprising given the proximity to psychological resistance at the 6500 level and we are now seeing a downtrend channel form on the hourly charts. First resistance comes in at 6390 at this stage, with major support now seen at 6290. A downside break here will signal that a medium term top is in place at 6480.
The DAX is making an attempt to bounce off Fib support at 7760, which is the 61.8% retracement of the move from 7530. This latest move to the downside has allowed overbought indicator readings to reset themselves, making the index more suitable for buy positions at the current levels.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.