Stocks Lower As Tech Names Weigh
Spread betting markets have been struggling to find direction in recent weeks, with most of the major benchmarks starting to stall at their elevated levels. This can be viewed as a positive or a negative, depending on your perspective. On the one hand, bulls might be encouraged by the fact that we have seen little in the way of pullbacks even though we are trading near all-time highs in several of the most closely watched benchmarks.
On the other hand, bears might be encouraged by the fact that traders have been unable to generate upside momentum even with the dominant uptrend still in place. For these reasons, markets remain at a critical crossroads with risk to reward ratios actually favoring the downside in stocks.
We did see a lower close this week, as the technology sector continues to be the “black sheep” and damage broader sentiment. For these reasons, it will be important to watch for any changes in earnings projections in this area. If we do see any positive changes, this could easily filter into the other sectors and bring the other benchmarks to new highs for the year. Next week’s close will be critical in determining direction for the rest of the quarter for all of these reasons.
The S&P 500 once again closed near its opening levels but with a slight downside bias as traders on the bullish end of things are starting to lose patience and are slowly pulling back on long positions. From a technical perspective, traders will need to watch the potential head and shoulders pattern that is forming on the daily charts, as any breaks of daily resistance will suggest the potential for a larger pullback.
The FTSE 100 is continuing with its strong rebound from the 6500 psychological support level. There is some reason for caution at current levels, however, because we are now trading in a resistance zone that is essentially defined by a triple top. And if we do not see some significant momentum soon, bulls are likely to lose patience and cut long trades. For these reasons, it makes sense to consider short positions in limited quantity as there could be gains her in playing the potential failure. Longer term bias remains positive as long as 6500 holds.
Last week, I wrote that “the DAX is starting to look like one of the best of the major benchmarks for new sell positions.” This turned out to be the case, as this was the index that saw some of the biggest declines of the big three. the analysis last week was based on the developing downtrend line on the dailies, and this formation continues to remain in place for next week’s trade. Expect continued downside bias in the DAX, only a break of the daily trend line will change the bias.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.