Learn to Trade Equity Index 31st August
Overview
Last week US equities continued to find themselves under pressure as poor data releases increased fears of a double dip. This week will be dominated by the latest jobs data released on Friday with expectations for further job losses. Once again scrutiny will be on the private payrolls number, a negative print here would be truly disastrous for bulls.
Thoughts from the trading floor
From a technical perspective equity markets continue to look weaker. The S&P 500 future is currently trading just above key support at 1137.00, as long as this level holds the potential remains for an inverse head and shoulders formation with a target of yearly highs (1216.75). A failure to hold above 1137.00 may result in ground being quickly lost and a re-test of July lows at 1002.75. If this level was to break bears would likely target support at 975.50.
Last Friday Fed Chairman Ben Bernanke gave an update on his current thinking in a speech at Jackson Hole. He reiterated that the US economy still faced great uncertainty qualifying this by noting that “overall, the incoming data suggest that the recovery of output and employment in the US has slowed in recent months to a slower pace than FOMC participants projected”. He also stated that further stimulus may be required with the preferred tool being quantitative easing. Initially markets reacted negatively to the speech however the promise of further action if required soon appeared to comfort bulls despite the gloomy outlook and we saw markets rally. Our interpretation is that further QE is likely before year end.
Last week over 65% of S&P 500 companies offered a higher dividend yield than the US Ten Year, currently at 2.5%. This may lead some longer term investors to see strong value in equities in light of few better alternatives. It is worth noting that current dividend yield is by no means a guaranteed for the future however this will likely provide equities with buying support not seen during the 2008 crash.
Important events this week:
- Tuesday: Chicago PMI (US), FOMC Minutes
- Wednesday: ADP Employment Change, ISM Manufacturing (US)
- Thursday: ECB Rate Announcement, Pending Home Sales (US)
- Friday: Non-Farm Payrolls, ISM Non-Manufacturing (US)
Bull View
Bulls will be keen to achieve a bounce from these levels to increase the chances of a daily inverse head and shoulder formation occurring. This weeks US jobs data may prove a major test.
Bear View
Bears will now be targeting a break of support at 1037.00 which will provide the opportunity for a push lower. At the moment all economic releases appear to be aiding bears and they will be hoping this weeks busy calender proves no different.
Futex View
We believe equities will continue to lose ground over the next few weeks as fundamental data releases continue top disappoint. As a result we remain bearish and will continue to sell into rallies.
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