Political Uncertainty Leads to Rare Negative Close in Stocks
Spread betting markets saw some relatively rare activity in terms of closing price levels during last week’s trading. Specifically, this means that the S&P 500 ended a long streak of record weekly closings, and a good portion of the blame now rests on rising political and military tensions in the Middle East. Whether or not these forces will continue putting pressure on stock prices is another question, however. And it is looking increasingly likely that those spread betters bearish on stocks should proceed with caution before taking new sell positions.
This comes mostly from the fact that the underlying fundamentals in the corporate earnings report still show signs of significant strength. There is also good reason to believe that spread betting traders are looking to capture some of their gains in long positions with exposure to the S&P 500 and the other major global benchmarks (ie, the DAX and FTSE 100).
Given the strength of the long term uptrends seen in nearly all of the major stock benchmarks, it is still much more prudent to view price declines as new buying opportunities rather than as reasons to believe that the bull market in stocks has run its course. Any impact from potential wars in Iraq is likely to be short lived, so it would not be wise at this stage to start basing long term positions on any expected follow-through here.
The S&P 500 is now looking like it is starting to roll over from a long term overbought rally. But from a chart perspective it is important to remember that short term support can still be found at 1920, and we are unlikely to see any dips below the 1900 psychological level as long as this continues to be the case. This means that current levels are suitable for short term buy positions. Stops can be set below 1900, as any downside break there would likely be accompanied by renewed bearish momentum.
The FTSE 100 had one of the worst performance weeks as far as stock markets are concerned, and critical support in the 6800 region has now been broken. This is a support level that we have been watching closely for the last few weeks and now that it has been violated, those bullish on the FTSE should proceed with extreme caution. Much better to wait for prices to fall back to the 6700 mark before establishing new long positions, as there is still some bearish momentum that will need to be worked out of the system before any real gains can be expected.
The DAX is still trading at relatively elevated levels but we have yet to see a convincing break of the 10,000 mark. Wait for dips before getting long again, as there should be an upside break of 10,000 before the end of this month.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.