Stock Volatility Created by Data, Earnings Expectations
Spread betting market got its first week of enhanced volatility in 2014, as markets responded to important economic data and the possibility that corporate earnings will continue with their previously strong trends. The S&P 500 managed to finish higher on the week, which is an interesting indicator of broad market sentiment because there was some disagreement in the underlying economic factors at work. The fact that investors were able to shrug-off negative developments with relative ease is encouraging for stocks and supportive for further gains (despite the elevated levels already in place). So while this does not necessarily mean that it is a good idea to start chasing prices immediately, it does suggest that any near-term declines are likely to be limited.
In macro data, the most important event was the monthly Non Farm Payrolls number. This release came in well below market expectations, which called for a strong number at 196,000 jobs. The ultimate result was 74,000 and this suggests that the recent trends in labor markets could be coming to a close. Any losses after the release were limited, however, as investors remain centrally focused on the increasing expectations for corporate earnings during the fourth quarter and holiday periods. In addition to this, a weaker employment number also suggests that the Federal Reserve might not be able to take an aggressive stance with respect to stimulus tapering — another positive for stock trends.
The S&P 500 closed positive for the week despite some losses in early sessions. Short term support still rests above the 1820 level so we would need to see a downside break here in order to put the focus back toward psychological figures (at 1800). Resistance overhead is now seen at 1850 and an upside break here would suggest that the broader uptrend remains firmly in place.
The FTSE 100 is starting to look top heavy after the massive rallies seen in recent weeks. This is mostly due to the fact that we have not been able to break through resistance at 6750. Because of this, we are falling short o of reaching a test of the longer term supply levels. The break of short term support at 6700 is another reason for those with bullish positions to start to consider taking profits. From a medium term perspective, we are still well above the most closely watched moving averages so there is no way to rule out a downside correction.
The DAX is making an attempt to recover its previous uptrend but the bounces seen at this stage are starting to look more like they are of the “dead cat” variety. After breaking support at 9400 we did see another run at 9500 but this is where markets were met with active selling pressure. A daily close below 9400 supports the argument for sell positions, while a daily close above 9500 would be bullish.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.