Stocks Pull Back After Fed Comments
Spread betting markets got some additional central bank guidance last week as the Federal Reserve gave new commentary about the planning of its reductions in quantitative easing programs. The S&P 500 came within three points of its all-time highs earlier in the week but then reversed once the latest stance at the US central bank was made public. The Fed has already cut its monthly asset purchase by $10 billion on two separate occasions, and the current figure stands at $65 billion each month.
Any further reductions should be viewed as a positive for the US Dollar but a negative for stock markets (in the US, Europe, and Emerging Asia). The latest comments from the Fed ultimately suggested that there will be no slowing in the pace of tapering, and this sent a signal to traders that many more cuts in QE will be seen before the end of the year. These comments ended the weekly rally and led investors to reject further upside in the S&P 500 once prices reached the relative price areas near the all-time highs. For spread betting traders that focus on price levels, this further solidifies the 1850 region in the S&P 500 as being of primary importance.
Going forward, it will be important to watch how traders react to the relative earnings strength that has been seen this season. Will these positives outweigh the stock negatives that are being seen as a result of the bearish Fed commentaries? This wo;; be the central question going forward and be the determining factor in whether or not we see new highs in the central stock benchmarks (the Dow and S&P 500, the German Dax, and in the British FTSE 100).
The S&P 500 saw some declines early in the week but this was not before prices came within three ticks of the all-time highs. For resistance the real level to watch can be seen at 1850, and a break to the upside should be viewed as a confirmation that the uptrend is still in place. To the downside, the major support level is 100 points lower at 1750. A downside break would signal that a top is in place.
The FTSE 100 closed the week very close to important resistance levels at 6800. But the fact that we have seen no real declines in these areas suggests that an upside break is only a matter of time. Short term sell positions can be taken at current levels but stops should be kept tight because a daily close above the 6800 level would be an extremely bullish event.
The DAX is still showing an intact uptrend and prices are currently trading near important highs in the 9600 region. We will need to see a weekly close above this area in order to confirm the uptrend is intact, and the index is still a buy on dips.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.