Stronger Economic Data Sends Stocks Higher
Spread betting markets traded with a more upbeat and positive tone when compared to what was seen during the previous week. To some extent, the upside moves in the larger stock benchmarks was something of a surprise, given the broader military and political escalations that have been seen in Russia and the Ukraine. In previous weeks, these tensions have added to the negative sentiment seen in many aspects of the market and caused investors to start moving into safe haven assets.
Of course, stocks do not fall into this category as these assets typically include instruments like gold and the US Dollar. So the increased political tensions brought the S&P 500, FTSE 100, and DAX off of their near-term highs. In addition to this, we started to see increasing reason to believe that recent growth figures out of China might not be accurate. This also put a hit on market sentiment because it essentially suggests that the current projections for global growth might miss to the downside.
Shorter term, however, we did see some positive moves in stocks, and these were driven largely by improving macroeconomic data in the US. The better reports came in multiple sectors, as jobless claims dropped and manufacturing productivity is showing strong progress. Of course, most of the underlying momentum in stocks is positive and it looks as though the bull run still have more upside potential as long as we do not see any major developments in the Russian conflict or more weakness in Chinese economic reports. Expect sideways trading in most stock markets next week, with a moderately upside bias. Dips should be limited.
The S&P 500 is trying to establish a foothold above the 1850 level and if we can get a weekly close above this area, there is little reason to believe we will see any strong moves back below 1800. We are still trading at all-time highs, so picking upside targets is a difficult practice. As such, expect psychological levels to be the location for short term sell orders. Long term trend is clearly positive at this stage, and any dips near 1800 should be viewed as a new buying opportunity. Only a drop below 1750 would signal that a top is in place.
The FTSE 100 is quickly becoming one of the most volatile stock benchmarks but we are still caught in a relatively define uptrend channel that portends higher prices going forward. The first level of important support comes in at 6500. This area is important not only because of its psychological implications but because a downside breach would also mean that the medium term uptrend channel would not longer be valid.
The DAX is posting a nice recovery after the major downside slide that has been seen in previous weeks. As long as we stay above the 9000 mark, expect to see a test of long term resistance at 9660.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.