25th January Equity Index Overview
25th January 2010
Equity Index
Overview
Last week was dominated by a large sell off on Thursday and Friday after a statement from Barack Obama outlining plans for changes in banking regulation. Between theWednesday open and Friday close the S&P 500 future gave up over 50 full ticks producing a new 2010 low of 1086.25.
Thoughts from the trading floor
Last week we believed that equity market had shifted to a more balanced technical position, now we believe this shift has continued and the medium term outlook is bearish. The daily trend lines that we discussed last week in the S&P 500 and Dax have both broken strongly and although going may be tricky with some large pullbacks we expect some daily support levels to be taken out over the next few weeks. In the S&P 500 future support on the downside lies at 1082.75 and 1067.25, a break of here may be pivotal with a protracted sell off resulting. For the market to maintain its bearish tone it is important it continues to trade below the 1112.00 area or this move could easily be considered a squeeze or bear trap.
Last week, Obama’s comments regarding US banks ability to proprietary trade and the extent they may expose their capital to risk overshadowed some strong earnings posted by Goldman Sachs. The reason theses comments were so significant was that they cast doubt over the way the financial world currently operates and pushed into the limelight the possibility of whole scale changes, which many feared would be the upshot of the credit crunch. The sell off that resulted last week was lead by financials particularly companies like Goldman Sachs because despite strong earnings investors are well aware that a good proportion of their profits come from operations that would be outlawed under Obama’s proposals. Early this week we expect this story to continue to gain attention, as other world leaders and influential individuals make there positions clear. If the idea gains widespread global support expect equity markets to remain under pressure.
This week we see a lot of data released particularly relating to the US housing market, an area that has recently shown some signs of softening. Up to now any disappointing data has been quickly shrugged off and the equities have continued their upward trajectory. If the market has indeed turned bearish any weakness in releases this week could gain a much stronger negative reaction than we have seen in recent times.
Bull View
Bulls will be keen to quickly regain some of last weeks lost ground and may well look to the data releases for support. Their first goal should be to reclaim the 1112.00 level in the S&P 500.
Bear View
Bears have had to play a very patient game up to now but they may see this as their opportunity. If they can force a break of 1082.75 early on in the week we could see a dramatic move in the short term, a failure to capitalise on this momentum may lead to some messy sideways trade.
Futex View
We believe that the current 2010 highs will not be breached in the medium term and that world equity markets will be under pressure over the next few months. We do not expect the markets to move as dramatically as they did last week over the next five days but the negative sentiment will continue.
