Stocks Higher on Budget Talks and Strong Cyber Monday Sales
Equity markets in the US showed their second consecutive positive closing (something that has not been seen since September), as trader sentiment improved on potential positives in US government budget negotiations and better economic reports that came in higher than analyst expectations. In tech stocks, both Amazon and eBay saw weekly gains of more than 5% as online shopping this holiday season rose by a massive 17% during the much-discussed Cyber Monday, which follows the Thanksgiving holiday and marks the initial period of pre-Christmas retail sales.
The S&P 500 saw marginal gains of 0.5% to close just above 1415 for the week, and this equates to a 4.1% rally since the middle of November. Gains in the Dow Jones were even more modest, as the index was higher by 0.1% to close just above 13,025. Most of the attention this week has been centered on the potential outcome for the Fiscal Cliff negotiations, and the gradual improvements in stock prices suggests that the market consensus is that there will be a favorable resolution to these negotiations before the end of the year.
Looking for the Next Sign of Market Direction
Looking beyond the impact of the Fiscal Cliff discussions, traders can get some sense of where stock markets are headed next when looking at the next round of corporate earnings. The S&P has posted a positive performance in November (up 0.3% after the -2% drop that was seen in October), as promises of central bank stimulus and improvements in corporate earnings are seen supporting stocks. So far this earnings season, Q3 profits in 73% of the companies listed in the S&P 500 have surpassed analyst estimates.
Here, the trend is clearly positive and when looking at the Cyber Monday performance seen with online retailers, there is some continued scope for more upside. This week, US Consumers spent $1.46 billion (much higher than the $1.25 billion see last year), and this essentially points to the highest day of online spending in recorded history. So, looking ahead, central stories in the market will continue to look at the holiday shopping trends seen in the next two weeks, as this will give the clearest indication of consumer confidence and the potential performance for retailers in Q4 of this year.
Price activity in the S&P 500 has posted a major bounce after hitting 61.8% Fibonacci support at the 1340 area. But while this upward move does bode well for longer term prospects, we could see some stalling this week as critical resistance can be found at the 1430 area. This means we could see some sideways trading activity in the early portion of the week but if prices are able to grind through this resistance area, traders are likely to see some enhanced volatility driven upward by stop loss momentum from traders looking to play the short side. A break of 1430 suggest that a full bullish rally back to 1475 is in the cards, so if we see this move, it would will likely create a positive S&P close for next week.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.