S&P 500 Posts Another Record High
Stock markets posted new record close at the end of last week with supportive investor sentiment aided by dovish central bank commentaries and continued strength in the early phases of the current corporate earnings season. One of the more positive individual stories came from General Electric (GE), which released a quarterly report that was much better than analysts had expected, and this helped to erase some of the negative news that came earlier in the week. Weaker than expected reports came from Google and Microsoft, but the broader strength in the GE figures helped to reverse some of the stock losses that were posted earlier in the week. So far, roughly 73% of reporting companies have posted per-share earnings that beat analyst expectations, while 53% of those companies have beaten estimates on the revenue side.
Other supportive macro developments were seen in China, where the country’s central bank (the People’s Bank of China) announced plans to abolish the floor in bank loan rates, effective immediately. This brought additional buyers to stocks with significant exposure to commodities markets. But the main story of the week was the Congressional testimony from US Federal Reserve Chairman Ben Bernanke, and the main question investors were asking was whether or not the Fed will begin reducing its quantitative easing stimulus programs at its September meeting. Any reductions here would be been viewed as a negative for stock markets, but this did not turn out the be the case, as Bernanke essentially suggested that the Fed could continue to pump monetary stimulus into the system of macro data fails to continue improving. This propelled global stocks to new highs for the month, and this trend is set to continue as we head into next week.
The S&P 500 posted strong rallies toward the end of last week, and closed at a new record high just above 1689. Since this is new record territory, there is nothing in the way of historical resistance up above. But since the overall bias is bullish, it makes more sense to wait for corrective downside pullbacks before entering into new long positions. The first support buy zone can be found at 1630.
The FTSE 100 saw a strong bullish push of its own, with prices closing above 6570. At this stage, it makes the most sense to view the index using Fib retracement levels. The latest move shows a push through 61.8% Fib resistance at 6520. This suggests a full retracement of the previous bear move and puts the focus back on a test of resistance at 6840. Buy on dips, with the first support buy zone now seen at 6480.
The DAX closed near its highs for the week, and the overall bias in the index remains bullish as long as we hold above the 100 and 200 period moving average cluster on the daily charts.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.