30th November Equity Index Overview
30th November 2009
Equity Index
Overview
Last week should have been relatively quiet due to the US Thanksgiving holiday but thanks to the concerns surrounding Dubai this proved not to be the case. After significant losses were seen in Europe on Thursday as the news broke, the return of US players on Friday restored order and US and European markets stabilised.
Thoughts from the trading floor
In the early parts of last week the S&P 500 future fell just short of recent highs as it recaptured all of last weeks losses. The fundamental news out of Dubai on Thursday caused the market to push down and test daily support at 1082.75, closing the day just shy of this level at 1083.00. On Friday morning the S&P future followed the European markets lower breaking 1083.00 before rallying back above here after US cash open finishing flat on the day. The result of these moves has been the formation of a tight daily double top in the S&P 500 future at 1112.75, the target of this formation is 1055.00. The European equity indices looked to have formed a daily head and shoulders formation with a neckline in the Eurostoxx 50 future at 2634. This formation is not technically perfect owing to the steepness of the neckline, it is worth considering however as if it catches the markets attention it could lead to a significant down move.
Over the last few months we have said that we believe a significant equity pullback will occur but it will need a shock development to trigger it. The question that has to be answered now is whether the Dubai debt uncertainty is that shock? There is no doubt that it will act to remind investors that we are not clear of the credit crunch fallout but the level of contagion and wider fallout will determine how important this event will end up being. What is certain is that this new development will have stirred some of the bears and it is likely that we will see a reduction of risk trades over the next few weeks.
Dubai aside, this week should prove important anyway as we see the last significant jobs data of the year. Wednesday sees the release of the ADP jobs survey, possibly the best indicator of the Non-farms number; and on Friday we get the real thing. Current expectations for Non-farm payrolls lie at -118K, the highest average analyst’s estimate for over 12 months. Alongside the headline number it will be worth keeping an eye on the Unemployment rate, last month this shocked markets as it spiked to the upside. Analysts are expecting to see no change this month so a further move to the upside could get a lot of attention.
Bull View
Bulls will be keen for the Dubai problem to be sorted and for jobs data to support there position allowing the bearish technical formations to be discounted.
Bear View
Bears will feel that Dubai is a turning point and that we are currently seeing a reversal formation develop. The more far reaching the fallout proves to be more likely they will be proven correct.
Futex View
We believe that Dubai is the beginning of a reversal in fortunes for the bears and the next month will contain the top of the rally. A disappointing jobs report in the light of the Dubai wobble could prove critical short term bulls.
