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S&P 500 – Market Set to Dismiss North Korea, Again

S&P 500 – Market Set to Dismiss North Korea, Again

What’s inside:

  • North Korea making increasingly aggressive moves, but market dismissing
  • ‘Bad’ news bought is evidence of a healthy tape and indicates higher prices likely ahead
  • Technical levels and considerations for the S&P 500

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Each time North Korea flexes its muscles on the nuclear-front the market shrugs it off despite the nature of each act becoming increasingly aggressive. U.S. equities are set to open lower again following Sunday’s nuclear detonation, but only by a small amount; and if recent history is any indication then the market will be quick to trade higher. The bottom line is that the market isn’t taking North Korea very serious at this point. ‘Bad’ news which is bought in an up-tape suggests higher prices are on the way. If stocks were poised for a sell-off, then market participants wouldn’t be so quick to dismiss negative headlines.

To start the abbreviated week, the S&P will begin near the underside of a parallel extending higher from the May low. In the weekly forecast, we briefly described the possible ‘head-and-shoulders’ pattern which could form on an immediate turn lower from current levels, but that seems an unlikely scenario given market’s bullish response to North Korea. The next level up beyond Friday’s high at 2480 is the intra-day record high set nearly a month-ago at 2491. Looking beyond there is the psychological level of 2500. A top-side trend-line extending over peaks since June will become the next focus on continued strength into record territory.

It will take a hard sell-off to dent the current bullish outlook, and even then, it will be prudent to give the market a chance to respond before turning bearish. All sharp drops for a good while now have been met with fresh buying shortly thereafter, and until that changes it’s hard to bet against the trend.

S&P 500: Daily

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---Written by Paul Robinson, Market Analyst

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.