Stocks Still Posting Record Highs
Spread betting markets continue to trade with a positive underlying tone as the central stock benchmarks posted new record highs again this week. It is starting to sound like a broken record at this stage, but this constantly bullish activity has actually led to another round of “doomsday” type market calls, which suggest that we are in store for a major downside correction before the summer is over.
This is the real question for spread betters in the current environment, given the fact that these bearish analysts have now started to draw economic parallels between the stock market now, and the stock market that was seen just prior to the 2008 collapse. Fundamentally speaking, these comparisons are unfair. This is largely because corporate earnings numbers have been in line with trend expectations and global macro data suggests that a firm recovery is still in place.
It is important to remember that the 2008 stock collapse was preceded by bankruptcies at several large (too big to fail) corporate institutions, and this is clearly not the case this time around. For investors, this basically means that initiating new long positions at the current levels might not be the wisest idea, but that the stock market is still a buy on dips. Short term sell positions can still be taken as stock valuations approach new highs, but stop loss levels should be kept relatively tight as the broader trend is clearly positive.
The S&P 500 is now posting market price activity that is almost universally bullish, with very little to be seen in the way of downside corrective retracements. Short term, traders will continue to be bullish as long as prices trade above the 1950 mark, and we could see some downside stop loss momentum kick in if this level breaks. These losses should be limited to the 1920 region, however, as stock bulls start to pile in while prices are still cheap.
Of all the major stock benchmarks, the FTSE 100 is still trading at the most critical inflection point. We are now seeing a triple top forming at the 6880 level, and another failure at this stage would be a highly bearish event. On the positive side, we have not seen many significant pullbacks from this level, so it is also entirely possible that we could see a clear break of this area, which would be highly bullish. So while these might seem like conflicting signals, this is often the name of the game when looking to base positions on price chart activity. Wait for a clearr break of 6880, or a failure, before establishing large positions.
The DAX is still looking very strong at this stage, look for a break of 10,000 before the end of this month. This is a level we have outlined previously but a break here is looking imminent.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.