Stocks Outperform in October as Stimulus Bets Continue
The month of October was a strong one for global stock markets as the stimulus-fed post summer rallies pushed equity markets to new record highs in several important stock indices. But the gains for spread betters could have been had in any region, as the rallies were truly global in nature. The MSCI All-Country World Index (which tracks stocks in 45 countries) saw October gains of 4.1 percent when dividends are included. This equates to a bi-monthly gain of nearly 10 percent – the best two month performance in roughly two years. The S&P 500 was higher by 4.6 percent for the month, which is the best performance since July.
For spread betters, all of this means that momentum clearly favors those with bullish positions, and these trends are likely to continue as long as investors are able to make the argument that central bank stimulus (in virtually every major market) will continue well into next year. As is usually the case, most of the attention rests on the US Federal Reserve, which is now expected to keep policy measures on hold given the likely weakness in GDP growth that will be seen after the first US government shutdown in 17 years.
It should be noted, however, that we are still in the midst of earnings season. So, spread betters with a focus on equities will need to monitor the overall strength of revenues and margin growth in order to determine whether or not these post-Summer rallies can continue.
Most of the directional movement in the S&P 500 has held positive, and while this clearly favors those with long positions, it makes sense to start looking for corrective retracements so that the longer term rally can continue. The first area to watch on the downside can be found at 1755 and if this area is broken we could see a much larger retracement to the downside.
The FTSE 100 is showing a low of the same characteristics as the S&P 500, with prices taking the “up escalator” with almost nothing is the way of downside retracements. If we do, however, see a break back through the 6700 level, we could see the formation of a head and shoulders pattern, which would suggest that a near-term top is in place. In the reverse scenario, we would need to see an upside break of 6820 in order for gains to accelerate.
The DAX is now looking to firmly establish itself above the 9000 level, and so far this has been the case. But momentum is clearly slowing at this stage and a range has now formed at these upper levels. This range (formed by 9000 on the downside and 9060 to the topside) is the area to watch, as a break outside in either direction will suggest that either the bull momentum will continue
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.