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Stocks Post Late-Week Reversal

US Federal Reserve
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May 18, 2014 By: , No Comments

Spread betting markets traded under pressure for a good portion of last week, as the traditional market maxim “Sell in May, and go away” seems to be taking shape.  The reasoning behind this traditional belief lies in the fact that many of the larger investors are likely to wind down their market positioning activity as we head into the summer months.  Reductions in activity mean lower trading volumes, and this can also reduce the level at which price changes develop over time (declining volatility).

Since many spread betting traders implement short term strategies, this can reduce some of the potential for gains, as we are less likely to see significant trending moves in this type of environment.  This does not mean that it is impossible for spread betting traders to make money, however.  It just means that different types of strategies will need to be used in order to really take advantage of market conditions.  Specifically, range trading strategies are much more likely to be successful given the fact that breakouts are less likely.  Breakouts tend to be damaging for range trading strategies

Going forward, the remainder of this month will be telling for what we can ultimately expect for most of the summer months.  Stock markets are still trading at elevated levels, so we can expect some degree of profit taking while we are trading near the record highs.

 

Technical Perspective

 

S&P 500:

The S&P 500 is once again having trouble with the 1900 level, with prices declining after a brief break above that critical line in the sand.  At this stage, the 1900 mark seems like the only real obstacle between current levels and the psychological 2000 mark, so a clear break above 1900 would be a very bullish event.  Support now rests below at 1860.

 

FTSE 100: 

The FTSE 100 is looking strong after the break of double top resistance at 6850.  The move to accomplish this was forceful, and we will likely need to see some period of retracement before we can make another major push higher.  Support now rests at the 6800 mark, so traders can start building long positions in this area in early anticipation of an eventual run at 7000.  Looks like positions here will require some patience before they can be triggered.

 

DAX:

The DAX is still trading toward the upper end of its long term range and it is starting to look as though the only real direction here is higher.  We do see something that resembles a triple top at current levels, but the resistance zones are not exact.  This makes trading in the DAX difficult until we see a clear break of 9800.  Short term sell positions can be taken here given the fact that we are trading well above historical averages.  But stop losses should be kept tight here, as there is building reason to believe that we will be trading much lower.

 

Richard.Cox

About Richard Cox

University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.

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