Stocks Stall After Hitting New Lows
Stock markets managed to just close in the black this week as markets are still caught re-positioning themselves for new central bank policy changes and a lack of monetary stimulus. The S&P 500 is trading back near the 1600 level but this happened only after prices hit new medium term lows near 1550. The dual effect of discouraging Federal Reserve comments and lower corporate earnings results is making it difficult for market bulls to gain any real traction and send valuations back near their highs for the year. At this stage, it seems apparent that the summer months will be lackluster at best, and with long term valuations still holding relatively close to their all-time highs, it would not be entirely surprising to see a downside correction in prices.
Next week will prove to be critical, however, as the monthly Non Farm Payrolls report will be released in conjunction with the unemployment rate. Both will be made public on Friday, so we will likely see slowing trading conditions in the early parts of the week. Traders should pay special attention to the ADP employment report, which will be released on Wednesday. This survey is generally used as a precursor for the numbers that will be seen on Friday (the NFPs). If we see any weakness in the ADP number, it is highly likely we will start to see downward revisions for the NFP data as well, and this would put global stock markets on the defensive into the final report release on Friday. Currently, markets are expecting an addition of 165,000 new jobs (after the 175,000 printing that was seen last month). The unemployment rate is expected to hold steady at 7.6%.
The S&P 500 attempted to regain some of the losses encountered earlier in the month, after hitting new medium term lows at 1550. These gains are likely the result of profit taking on short term bearish positions, however, so there is relatively little to get excited about here in the near term. Current levels are suitable for new sell positions, as the psychological 1600 level is likely to act as support turned resistance. A break above 1620 reverses this bias and targets 1660.
The FTSE 100 saw some lift into the latter part of last week, with prices rising back toward resistance at 6180. This was a major area of support previously and will likely act as resistance now in the near term. The damage has been done to the daily charts, however, with clear moving average breaks already seen, and the index remains a sell on rallies. The next downside target comes in at 6060.
The DAX managed to make a nice bounce off of its 200 day EMA, and this presents a more encouraging picture, given the series of higher lows that have developed. Buy positions can be taken but stop losses should be kept tight. A break of 7690 reverses this bullish bias.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.