What’s inside:
- European indices and US stock futures shrugging off ‘bad’ news
- Stiff overhead resistance remains a threat to rally, but...
- Will take some time to break psyche of prevailing trend
Sunday night the S&P 500 futures started right out of the gate on a negative note, with the meeting in Doha ending without an agreement to freeze output and thus helping to maintain a bid in crude oil. This sent crude oil futures down roughly 7%, while hitting the S&P by 17 handles or so at their worst levels. Since then, crude has taken back more than half of its losses while European stock indices and US index futures have recouped most of their losses. The DAX is approaching the unchanged line after being down by about 1.25% and the S&P futures are currently down by about 4 handles at the time of this writing.
Had this event taken place in January, early February it is likely the damage would have been worse and there would have been no shrugging off of the ‘bad’ news. But we are in a different time now, where bad news is shrugged off for the most part, and good news bought aggressively. There are lots of ways to measure sentiment, but if you want one simple method – watch how markets react to big headlines.
On Friday, we went over the critical area the S&Ps (SPX500) were trading at, consisting of multiple forms of resistance in the vicinity of ~2083/95. This makes for a potential turning point for a move back towards the lower parallel of a developing upward channel.
There is minor trend support off the February 11 low, but given the distance between connecting points, further confirmation (obvious reactions around the line) is required before taking it into serious consideration.
For now, the lower parallel around 2045/50 is considered our biggest level of angled support, with a daily close below the 2033/40 zone being considered a material trend-changing event. We do not anticipate the trend becoming threatened at this time. We have been noting that while we are near some pretty critical price levels, if a broader swing lower is to develop it could take some time before a stubborn buy-side crowd decides to jump ship.
SPX 500 Daily
It’s been a very strong rise not only in terms of price, but in the number of stocks participating in the rally. Let’s take a look at one simple metric for measuring the health of the market; the percentage of stocks on the NYSE trading above the 50-day MA. It has shown over 80% of stocks trading above the threshold for most of the past month, the most persistent pressure since the beginning of 2012. This does not mean the market can’t roll over, but it does suggest that breaking the prevailing psyche of the market could take a little time. (Today is a good example of this.)
In the immediate future we will continue to trade between the lines of support and resistance until we see a bigger picture set-up present a clear opportunity to catch a move beyond a couple of days. That move does look more likely than not to come to the down-side at some point, but, again, we may need to be patient in waiting to see if that develops. In the interim there will be plenty of 1 to 2-day holds to capitalize on.
What traits make for a successful trader? Find out in here.
---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter @PaulRobinsonFX.
