Jobs Data Helps Stocks Reverse
Spread betting markets saw some major reversals into the final trading sessions of the week. Most of the world’s benchmark stock indexes were under pressure for most of the early part of the week as investors saw opportunities to take profits on long positions. This is not completely surprising, given the elevated levels that we have seen in the last few months, and the relative lack of corrective retracements in all of the optimism. Stock markets around the world are trading near multi-year highs, and we have even seen some notable examples in those that have posted record highs on a near-continuous basis.
But with the prospects for central bank stimulus tapering, many investors shown signs of concern as we head into the final trading weeks of the year. This pushed the S&P 500 back into the 1700 and kept the FTSE 100 from breaking near term resistance levels. But all of this changed on Friday, as the latest Non Farm Payrolls release out of the US came in much better than expected and showed that the global recovery likely has further to extend. Monthly jobs increases for the month of November came in at 203,000 new hires, which was well above the 185,000 increase that marked the analyst consensus expectation.
The positives in the data showed that market valuations in stock markets have not yet become over-extended, as the underlying strength in the economy remains stable. These positives are likely to carry over into next week, with stock prices seeing a modest drift upward.
Looking at the S&P 500, I wrote last week that “first support comes in at 1780,” and this is the region that marked the lows for last week’s declines. Prices did in fact bounce out of this region and are now firmly on track to test resistance at 1810. We are at elevated levels, but short positions here are overly risky, as this upper resistance level in unlikely to hold if it is tested again next week.
Last week, the FTSE 100 found support in the 6500 region and the bounce from there was sharp, but the index is still vulnerable to downside declines given the strength of the bear moves seen last week. long positions can be taken as long as 6500 holds, but a break there would target 6330. This scenario best works for short term buys, but we will need to see how markets react once prices retest 6500 before making long term trading decisions.
The DAX has established upside momentum, even with the small declines that were seen as prices dropped back to 9070 last week. Drops like these, however, should be viewed as new buying opportunities, as the bias remains firmly bullish as long as prices hold above the 9000 psychological level. For now, the upside target rests at a retest of resistance at 9430.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.