What’s inside:
- The S&P 500 searching for direction, bobbling between support and resistance
- U.S. markets the global laggard, continues to impact how they will trade on the up and downside
- Patience required in this market until further clarity presents itself
So far, the support area we were talking about on Tuesday continues to hold up for the S&P 500. The problem right now is that price action is uninspiring, in either direction. Over the past week the S&P has bounced around between major intermediate-term support (Feb 11 t-line; 6/8 peak, 9/12 low) and minor short-term resistance (mid-2140s).
The lack of clarity from the bobbling between levels is leaving traders with little to lean on for strong directional indications. One day it looks like the market might want to roll over, the next it looks like it wants to hold key support and begin trying to clear through resistance. We will need to continue to be patient and wait for better price behavior and clear indications before becoming overly aggressive in our operations.
U.S. markets have found themselves in an unfamiliar spot since ‘Brexit’ as the global laggard. The Nikkei is at highs not seen since the spring, Europe is looking to make new multi-week highs (DAX & CAC 40), and in the case of the FTSE, new record highs could be around the bend. Looking to South America, the Brazilian Bovespa is up huge for the year, with over 10% in just the past month. Whatever you pin it on, whether it be the prospect of higher rates and the uncertainty surrounding the upcoming election, the bottom line is the U.S. is lagging.
S&P 500 vs. Europe/Japan/Brazil
Created with Tradingview
What does this mean? It means we can expect that if global risk appetite is going to hold a bid, don’t look for the S&P 500 or any of the other U.S. indices to lead the way. If general risk appetite were to sour, it is likely the U.S. will be the first to dip. This information doesn’t do a lot for helping to determine the direction of the market, but it does help us understand how the market might react in either scenario. Upward movement is likely to be sluggish, while downward will come more swiftly.
Getting back to the daily chart, the mid-2140s remains fairly formidable in the near-term, and must be overcome before things begin to perk up a bit. But even then, the market needs to clear through several weeks of range-bound activity and above the upper parallel running down off the 8/23 peak before we can strengthen expectations of seeing new record highs. If the recent malaise in trading turns out to be a pause before a decline, we need to keep an eye on the recent low at 2115. An undercut of this level on a daily closing basis would also constitute a lower low from 9/12. Lower parallel support would arrive around 2100, with another lower parallel coming in closer to 2080.
S&P 500: Daily
Created with Tradingview
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---Written by Paul Robinson, Market Analyst
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