Stock Markets Stall but Maintain Elevated Levels
Spread betting markets saw some stalling activity after benchmark indices in various locations around the world set new record stock valuations. The latest example of this exuberant run higher could be seen in the German DAX, but the reasons behind these rallies show many similarities. Recent statements from the European Central Bank (ECB) have shown that the economy is still in need of additional stimulus and renewed policy actions to drive growth.
Since the ECB recently surprised markets by lowering interest rates to a new record low, we have several clear indications that the ECB is ready to “put its money where its mouth is,” and actually act on these proposed intentions. This also provides something of a contrast with what is seen in other locations around the world. The Federal Reserve has made similar comments but the actual results have been more murky.
The sum effect, however, has been the same. As the S&P 500 managed to maintain its foothold above 1800 despite the typical tendency for investors to engage in profit taking before holiday thinned trading conditions set in. The lack of pullback in any of these major indices suggests that the momentum will remain positive into December. The only thing that would begin to derail these trends would be if we see examples of prominent central bank members suggesting a need to cut back on stimulus or show concerns for consumer price inflation.
The S&P 500 started to flatten out after pushing forward to reach new record highs above last Friday’s close of 1805. The momentum is still clearly positive but we are starting to slow in strength so this should light some warning signals for those still long the index. Prudent move here is to cut positions and take profits, opting instead to wait for a corrective retracement before getting bullish once again. First support comes in at 1780.
The FTSE 100 is still looking like the weakest of the majors indices, with prices unable to overcome critical resistance levels at 6700. We are actually starting to form a descending triangle at this stage, so if we see a break of important pattern support at 6620, we could see losses accelerate. These two levels form the main range, so wait for a break out of one of these areas before deciding on a trading bias.
The DAX established itself as the major winner last week as prices rose to a new all time high above 9400. Since we are now at record levels, it is impossible to define historical resistance levels and this makes long positions risky when looking at the index. It is best at this stage to wait for corrective pullbacks, but we are also not seeing any major support levels until we drop back to 9280, so high probability trades will probably not be seen in this index next week.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.