S&P 500 Posts First Close above 1900
Spread betting markets reversed some of the trends seen last week, as improved sentiment helped push the S&P 500 to its first close above 1900 in the history of the index. There were a few different stories that helped push investors back into bull mode, as individual positives were contributed by Hewlett-Packard Co. (HPQ) and better than expected homes sale numbers suggested that the economic recovery continues to press forward.
As we head into the final trading week of this month, it will be important for investors to see specific stock stories that are positive in order to generate additional runs higher in the central equity benchmarks. This is largely because this earnings seasons has been associated with mostly lackluster results. Combine this with the fact that the Federal Reserve is clearly intent on cutting its historic QE programs and you have the basis for a strong argument to start cutting long positions in stocks while prices are still elevated.
For those that are looking to play the market in the opposite direction (selling the strength that is currently seen), the best way to go about it is to wait for breakout scenarios where key support levels are violated to the downside. This would be the first indication that the rally has run its course (short term), and risk to reward ratios would then clearly favor short positions in stocks.
The S&P 500 has finally broken and closed above the 1900 level, which is a highly bullish scenario for those that are looking at long term time horizons. Shorter term, however, there are good values in betting against the rally and these types of trades should be established if we see support in the 1860 region violated to the downside.
The FTSE 100 is still trading at elevated levels but there are clear causes for concern as the index it now showing a well defined double top just below 6900. This area is now the key level to watch and short positions can be taken at current levels with stops just above this key psychological resistance mark. Positions should be reverser, however, if this level does break as there is essentially nothing then to stop the FTSE from its test of the 7000 level.
The DAX is posting a slow and somewhat erratic grind higher but we are seeing little in the way of downside rejections so the bias has to remain cautiously bullish until we start to see some clear areas start to act as real price resistance. There is nothing wrong with buying dips into the 9600 area as this provides relatively good value for what is still a long term uptrend. If we do see a break here, however, the next downside target would be found in the low 9400s.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.