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Once Again, All Eyes on the Fed

US Federal Reserve
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January 27, 2014 By: , No Comments

Spread betting markets were jarred with negative sentiment into the end of last week, and we have seen little in the way of stabilization in Asian trading on Monday.  The S&P 500 traded forcefully back through the closely watched 1800 level as investors booked profits at elevated levels.  Part of the reasoning behind this can be seen in the fact that we have some major risk events this week, with the Federal Reserve conducting its January FOMC meeting.  This makes it difficult to commit to heavy positioning because we do not yet know if the Fed is going to announce additional stimulus reductions.

At the moment, most of the data suggests that this will not happen.  Last month’s reports in labor markets showed the first evidence of weakness in a long while and this ultimately suggests that we could be seeing a trend reversal in the negative.  If these latest numbers are a big concern for the Fed, it is much less likely that we will see additional tapering announced at this next meeting.  If this is actually the case, we should see a turnaround in stock prices into the close of the week.

Of course, this is not all markets are watching, at the moment.  We also have a string of important corporate earnings figures, and this will be most important for spread betting traders that are focused on single stocks.  In any case, it makes sense to keep position sizes small, at least in the early parts of the week.  Prudent move is to wait for these key event risks to pass before jumping back into bigger positions.

 

Technical Perspective

 

S&P 500: 

The S&P 500 is attempting to stabilize after making a strong downside break through the psychological 1800 level.  At the moment, short term support rests at 1780 but the bounces here have been limited and it is starting to look like this is just some sideways consolidation before another run lower.  Sell positions can be taken anywhere near the 1800 mark (support turned resistance) but these should be viewed as short term positions given the longer term bullish trends.j vjnjbgh

 

FTSE 100: 

Last week, we said that the FTSE 100 “some warning signs for bulls that could limit further gains and create some arguments for taking profits at current levels.”  This turned out to be good advice, with prices now trading in the low 6500s.  Support is now seen at 6510 but stops should be kept tight on any buy positions.

 

DAX:

The DAX is also seeing some big downside moves and we are currently grinding through support at 9340, but this area looks unlikely to hold given the lack of bounce out of the lower ranges.  Rallies should now be viewed as selling opportunities but we do not see any strong resistance until we hit the 9600 region.  Those still long should consider taking profits.

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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