Stocks Under pressure to Start the Year
Spread betting markets some some significant trend changes in the first trading week of 2014. Specifically, the S&P 500 gave back some of its recent gains and close negative for the week. Longer term, however, the positive trends remain more than apparent as the central US stock benchmark reached record highs and had its best yearly performance in over 10 years. The S&P 500 had gains of nearly 30% on the year, as global stimulus packages support the outlook for corporate earnings in more regions of the world.
Looking ahead, spread betting traders will need to contend with a few opposing issues in order to determine whether or not a similar performance will be seen in 2014. Primarily, we will need to focus on the level of commitment shown by the main central banks (the US Federal Reserve, the European Central Bank, and the Bank of Japan). If we start to see a greater level of confidence in these bodies, the outlook for continued monetary stimulus will start to break down and this would not bode well for stock valuations at their current levels. Ideally, we will see a balance between economic growth and a willingness to continue with central bank stimulus.
If this occurs, any downside in the world’s major stock benchmarks should be limited, and buying opportunities would likely outweigh selling opportunities for those interested in trading assets like the DAX, FTSE and S&P 500.
The S&P 500 came off of its recent all time highs, in a downside correction that was much needed. The bearish moves were limited, however, and we have yet to test important support in the 1810 region. This area is resistance turned support, so it makes sense to wait for prices to revert back to these areas before choosing to get long again on the S&P 500. Resistance remains overhead at 1850.
The FTSE 100 traded mostly sideways, consolidating the massive gains that have been seen in the markets since early December. These moves cannot be considered a reversal, however, until we see breaks of major support and this has not yet happened. Overall, the bias remains bullish and the next upside target comes with the expected test of the old highs at 6810. Support below can be found at 6720. Buy positions can be taken here, with relatively tight stop losses.
The DAX saw some big bearish moves into the close of last week, with prices failing after a strong test of resistance at 9600. The longer term moves into the close of the year were excessive, however, so it is not entirely surprising to see buyers taking their profits at these elevated levels. Contrarian positions can be taken on any approach of 9600 but the longer term trend is bullish and this supports the outlook for buying on dips strategies. Support below is at 9400.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.