S&P Ties All Time Highs after Strong Retail Sales Data
Global stock markets were modestly positive for most of last week, as there was little in the way of economic data to discourage positive sentiment early on. Initially, buying activity was seen as US Retail Sales and Australian jobs figures came in much higher than analyst estimates. Consumer Confidence numbers later in the week, however, turned the tide, and this led the S&P 500 to trim its weekly gains to 0.6% after hitting the all time high valuation (at 1565) that was first posted in 2007. At this stage, US stock markets have now erased all of the losses that resulted from the 2008 credit crisis, with the Dow Jones Industrials surpassing its 2007 highs earlier this month.
Trading volatility was mostly subdued last week as there was little in the way of economic data to guide sentiment direction (other than the Retail Sales report). But this is likely to change next week, as we will see the minutes from the last Reserve Bank of Australia monetary policy (key for gauging interest rate prospects), the Consumer Price Index in the UK, and the next interest rate decision from the US Federal Reserve. Look for any suggestions of ending dates in US monetary stimulus programs to weigh on stock markets and provide some additional downside momentum for stock markets that are already trading at historically elevated levels.
The S&P 500 showed some stalling after matching its all time high valuation from 2007. We will need to see a clear break of the 1565 level in order to maintain the bullish long term bias. From the shorter term perspective, a head and shoulders pattern has developed on the 5-minute charts, and given the proximity to the all time high, the balance of the evidence favors short positions as long as prices hold below 1565.
The FTSE 100 was positive for most of the week but then gave back those gains on Friday to essentially post an unchanged weekly performance. On the dailies, we are now seeing a bearish engulfing candle, and this suggests that prices will see a test of 6370 before any real short term bounce can be expected. Resistance is now seen at 6470.
The DAX was one of the best stock market performers on the week, closing out at the highs near 8050. Overhead resistance is now very thin, as the next upside target is seen at 8270. Buying on dips is the preferred strategy. First level of support comes in at 8010, and this is followed by further support at the 7940 level.
The Nikkei 225 has seen massive upside moves this year, and most of the available indicator readings are showing that a downside correction is imminent. Buying in at these elevated levels is risky because of this, so for bullish traders, key support can be found at 12,220.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.