Learn to Trade – Equity Index 9th August
Overview
Last week world equity markets again posted gains as hope of further Fed action was boosted by a soft jobs number. This week focus will be on thelatest FOMC rate decision with many traders expecting an extension of the QE program.
Thoughts from the trading floor
From a technical perspective little has changed since last week, the S&P 500 future is still trading below daily resistance at 1129.50. If Bulls could force a break of this level further resistance lies at 1147.50 and 1174.75. To the downside support lies 1083.50 and 1050.75. Currently the market is at a pivotal point, a failure to break recent highs in the medium term would most likely result in the market drifting lower to re-test 2010 lows at 1002.75.
Last Friday the latest employment numbers were released in the US with the headline coming in at -131k. This compared to analysts estimates of -70k and a s a result we saw equities come under pressure. The private payrolls number was also under the spotlight and this came in at 71k against expectations of 100k. When some downward revisions were thrown into the mix for for the previous months results this release proved bad enough to put the current bull run under pressure. On the US open we saw equity markets post a recovery with this attributed to expectations that the disappointing result would force the Feds hand for more stimulus.
On Tuesday evening we will see if the Fed acts to extend the QE program or peruse any other forms of stimulus. If they choose to undertake more QE they have two options, they could either roll over some of the maturing assets on their balance sheet into treasuries or commit further funds to a new buying program. Either would likely appease bulls for now however a failure to move in this direction would result in equities coming under severe pressure. We do not expect the Fed to disappoint the market as this would destabilise the recovery.
Important events this week.
- Tuesday: FOMC Rate Decision
- Friday: CPI, Advanced Retail Sales, Michigan Confidence (US)
Bull View
Bulls will be keen to build on another good week by taking out the next key support level at 1129.50 in the S&P 500 future. An announcement of further QE on Tuesday would aid their cause.
Bear View
Bears will not be panicking yet and will be hoping that the recent run of poor fundamental data continues this Friday with the release of Advanced Retail Sales.
Futex View
We believe the Fed will announce further QE on Tuesday and that this will provide equities with a boost. However, the recent softens in data will result in equity weakness later in the month. As a result we still believe in selling into rallies in the medium term.
Tags: Advanced Retail Sales, bear, bull, cpi, Equity Index, FOMC, futex, QE Program, S&P, US
