Dollar Under Pressure in Thin Markets
Spread betting markets are now drawing to their yearly closes with stock markets broadly higher as we head into the final trading sessions. Most of this upside activity has been propelled by rising corporate earnings, strong trend in macro-economic data (in both developed and emerging markets), and historic stimulus programs from many of the world’s largest central banks. Most of the attention has focused on the S&P 500 and Dow Jones Industrials — both of which have risen to new all-time highs. But the uptrends have been present elsewhere, as well.
Some of the most significant alternative examples can be found in the German DAX and the Japanese Nikkei, which showed some of the best performances of the year. It has been easier to miss the performances in Japan, however, because of the relative underperformance that has been seen this year in Asian stocks. The reality is that the Nikkei 225 is currently showing annual gains of nearly 57%, as historic moves by the Bank of Japan have helped support the country’s coporate outlook.
In addition to this, extreme weakness in the Yen is viewed as a positive for the export economy. Since this aspect of the economy makes up a significant portion of GDP growth, it will be important to watch currency markets as we head into next year as this will be a primary indicator of whether or not these surges will be able to continue long-term.
The S&P 500 continues to hold at its elevated levels, with market valuations now seen north of 1840. But with little to be seen in the way of corrective retracements, long positions at these levels should be taken with caution (or at least tight stop losses). More specifically, support now comes in at 1810 (which is resistance turned support at this stage). So the bias remains bullish as long as we are able to hold above this downside barrier.
The FTSE 100 has been one of the strongest performers in the last few weeks with the index posting major rallies after hitting support at 6440. This is a level that we have mentioned previously, so long term traders will need to see a weekly close below this area before the broader balance turns negative. Given the strength of the recent rallies, however, contrarian sell positions can be taken at current levels bt stops should be placed above 6800.
The DAX has gapped higher in recent sessions after making some attempt to bring a much needed correction to the downside. These declines were limited to the middle of December, however, and market valuations look clearly set on at least a test of the 9600 mark. At this stage, all of the upside resistance levels will be psychological in nature, as there is no historical resistance to use for stop losses in short positions. Buy dips back into short term moving averages.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.