S&P 500 Hits New Record as Data Supports
Spread betting markets extended in bullish sentiment as several key stock benchmarks continue to press forward with new long-term highs. This is largely because economic data releases have shown stabilization and corporate earnings have come in largely higher than the initial consensus estimates posted by analysts. This essentially shows that the market is performing well from both a micro and macro perspective. There are arguments that can be made for buying both individual stocks (especially those that beat early earnings estimates) and the broader stock indices, although the latter choice has now moved to elevated levels relative to recent historical averages.
This should send warning signals to spread betting traders that are bullish on stocks, as the S&P 500 is now showing positive for the sixth straight year and up more than 175% from its 12-year lows that were posted in 2009. The move upward has been massive, and this does make it more difficult to find good values in the major benchmarks as a whole. That being said, there appears to be no immediate catalyst for near-term declines, so it makes sense to base trading decisions on “buy on dips” strategies as long as we see no major surprises in the broader growth data.
Looking ahead, it will be important to watch the outcome at this month’s monetary policy meeting from the European Central Bank (ECB). This will give a good indication of the ways the global economy is performing and in whether or not we will see any major changes in interest rates for the Eurozone. We will also have monthly employment figures out of the US, so next week could see a ramp up in volatility.
The S&P 500 is now grind through new psychological resistance at the 1860 handle and since these are all-time highs, it is difficult to pick upside price targets. This makes short positions risky unless we see a clear reversal signal, but this will not be present unless we see a break of support at 1740. This, of course is some ways off and buy on dips strategies will be preferred as long as this historical demand level holds intact.
The FTSE 100 is showing a steady uptrend of higher highs and lows, and prices have now made their way through important resistance at the 6820 level. Momentum is slowing, however, so expect to see some retracement back to support at 6450 before we are able to make another forceful run higher. Expect range trading conditions to persist unless we see a major support level break.
The DAX is the only index that has yet to make a break of resistance, so those looking to short equities should consider something in the DAX near 9700. Slowing momentum suggests that we might have seen a top in this region, making risk to reward ratios favorable at current levels.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.