Political Uncertainty Weighs on Stocks
Spread betting markets seem to be affected by a sense of creeping pessimism as the S&P 500 posted its biggest loss in five weeks despite the fact that no major economic reports were released. Since it is relatively clear that these moves in stocks have not been driven by economic releases, it should be noted that sentiment still has the ability to guide markets. Political instability in the Ukraine has kept some investors on the sidelines and prompted others to close positions while prices are still elevated.
During situations like this, oil markets tend to have increased volatility and most investors will generally avoid taking out new positions in stocks. This has put pressure on the major global indexes (S&P 500, FTSE 100, and German DAX) and kept these benchmarks from pushing forward to new long-term highs. Broader implications for the market are still relatively limited, however, and this is why we have not seen much deeper declines in the big three stock benchmarks. These moves to the downside will probably be viewed as new buying opportunities, especially if we start to see some progress toward resolution in Ukraine’s talks with Russia.
Elsewhere, negative data out of China have created additional reasons for concern and led to speculation that the country is manipulating its economic reports to exaggerate its growth numbers. Early indications that this is the case have been seen in China’s trade numbers, which have turned negative at rates that have not been seen in recent memory. This puts global GDP projections for 2014 at risk, and this is another factor that could continue to weigh on sentiment in the coming weeks.
The S&P 500 is rolling over and we are now contending will important short term support levels in the 1840 region. If we see a clear break below these areas, additional losses will be expected as there is no real support until we fall back to the 1800 handle. This is a resistance turned support region and if we drop below here, the next level to watch is 1740. Each of these zones can be viewed as short term buying opportunities but stops should be kept tight as support breaks should build in bearish momentum.
The FTSE 100 is looking very weak after failing at important resistance levels. Specifically, the 6850 level is the most critical resistance area but there is little scope for gains here until we test support at 6450. This means we are still in store for more downside until we can see some historical demand levels, so bull should hold off on new positions until we drop back into this region.
The DAX has broken the level we cited last week at 9130. This did in fact send prices crashing through the 9000 barrier and the bias now rests clearly on the downside. Look to sell rallies.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.