Stocks Continue Trending Higher
Spread betting markets traded with a positive underlying tone once again this week, with the central stock benchmarks hitting new records. Most of the positive price activity came in utilities and in consumer staples, but there were some encouraging stories in the tech space and this helped generate some reversals in some weaker areas of the market.
Trading during the week was shortened due to holidays but the overall gains for the period in the S&P 500 were still relatively good at 1.2%, so it is clear that the general bias in still bullish even though the markets are essentially trading in uncharted and highly elevated territory. We are now starting to see arguments in the financial media which suggest that the current rallies are starting to look like the broader financial environment during the 2007-2008 period.
These arguments are significant, given the fact that this was when major declines quickly followed in a period that was later referred to as the ‘Great Recession,’ so these arguments have made some traders reluctant to start buying into long term positions at the elevated levels. Whether or not these concerns are valid is entirely different story, however, as corporate earnings are still relatively supportive and it can also be argued that the 2007-2008 period was met with declines that were overly momentum fueled and should not have extended as far as they did. These are critical questions that will need to be resolved in the coming months.
The S&P 500 has now established a footing above the 1900 level, in another highly bullish scenario for those that have established long term positions. This 1900 mark will remain critically important however, as this will serve as a short term pivot point for those that are trading in an intraday framework. Buy short term dips into 1900, with stops resting just below.
Last week, we wrote that “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 week, the FTSE was the weak link amongst the major stock benchmarks and it is starting to look like this double top resistance might hold. Prices are now trading back into the lower 6800 so hold off on long positions until the 6900 mark is clearly broken.
The DAX is looking very strong at this stage now that all of the immediate price resistance has been essentially removed. Prices have started to stall to some extent near the 10,000 mark but we are not seeing any real profit taking at these levels so it does not appear as though there is anything that is standing in the way of at least a test of the 10,000 level. Short times can be taken there but stops should be kept tight.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.