Overview

Last week the S&P 500 future showed some strength, recouping a lot of recent losses, closing above 1100.00 for the first time since 10^th August. Performance was boosted by some strong macro releases including the latest US jobs report. This week may prove much quieter with few large economic releases and Labor Day holidays.

Thoughts from the trading floor

From a technical perspective equity markets look significantly stronger than they did one week ago. Crucially the S&P 500 future held above support at 1137.00 leading to the formation of a daily inverse head and shoulder pattern. If this is to succeed it will need to break its neckline currently at 1126.50, a realistic target would be 2010 highs at 1216.75.

Last week the macro releases proved to be the strongest for several weeks with ISM Manufacturing surprising to the upside followed up my strong jobs data. The US payrolls numbers showed that only 54K jobs were lost compared to expectations of  -90K.  The Private Payrolls number also surprised to the upside coming in at 67K against expectations of a 40K print. Although these number were not exceptional they were strong enough to result in a good rally. Despite good data last week the trend is still towards deteriorating results, it will take a few more strong readings to convince many participants we are not heading for a double dip.

The summer has now come to an end, this leaves market participants looking for some indications of how the second half of the year will pan out. We have certainly seen a general downturn in macro indicators and despite some good results last week the trend is clearly bearish. The extremely low bond yields particularly at the long end of the curve (10 & 30 year) also provide another strong bearish indicator. The currencies also paint a bearish picture with USD/Yen at the lowest levels since 1995. If we do not see a fast shift in these indicators especially a dramatic steepening in the US yield curve over the next four weeks equities may come under substantial pressure  and the likelihood of a negative year appears high.

 Important events this week.

• Thursday: BOE Rate Announcement, Initial Jobless Claims (US)

Bull View

Bulls will now be targeting the inverse head and shoulders neckline in the S&P 500 future currently at 1126.50. The lack of fundamental release this week will likely aid their cause.

Bear View

Bears will now be targeting a break of support at 1037.00 which will provide the  opportunity for a push lower.

Futex View

We continue to back the bears and believe the recent rally provides a good selling opportunity. Despite last weeks strong data we expect results to continue to deteriorate as the year progresses.

Tags: bear, Bearish, BOE, bull, equity market, futex, ISM, Macro, S&P 500 Future, US, Yen

This entry was posted on Monday, September 6th, 2010 at 10:33 am and is filed under Equity Index, Trader News Trader Views. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.