Learn to Trade Equity Index 14th June
Overview
Last week equity futures showed their strongest performance for 7 weeks with the S&P 500 future gaining just over 25 full ticks. This week sees little fundamental data released and unless we see further developments in Europe a relatively quiet 5 days might follow.
Thoughts from the trading floor
From a technical perspective equities look slightly more stable after having consolidated above recent lows however the S&P 500 continues to trade below its 200 day moving average. Over the last three weeks a clear trading range has developed in the S&P 500 between 1036.75 and 1107.25. This range looks to be gaining significance and as a result we may see the market continue to trade sideways as market participants looks for clues as to the direction of the next move. A break to the downside could easily see markets lose ground quickly with 955.00 representing a good first target in the S&P. If we were to see a break to the upside bulls may quickly come to the conclusion that the recent bearish conditions represented a good buying opportunity and a fast rally to 1147.50 could be on the cards.
Last week it was noticeable that the equity markets were beginning to calm down after 6 weeks of high volatility. This most likely is a sign of things to come as we enter the summer months which traditionally host quiet market conditions. It is also worth noting that the Football World Cup will be taking place over the next 4 weeks which may also distract traders. This would set up the markets for a potential sell off in September/October assuming fundamentals remain week. This pattern is one often seen in bear markets and would replicate what occurred in 2008.
Last week we mentioned how strongly some of the risk off markets were performing, particularly the Bund. Gold can be added to that list as last weak we saw it reach all time highs at $1252. The driver of this bull run appears to be the growing uncertainty surrounding the Euro, government borrowing and the inflation/deflation risk. This underlines the growing concerns of market investors and adds weight to the argument that equities will see another large leg lower before the year is out.
Important events this week.
- Tuesday: ZEW Survey (Ger)
- Wednesday: PPI, Housing Starts US
- Thursday: CPI US
Bull View
Bulls will be happy that the markets appear to have stabilised and will be hoping to see some USD weakness to aid their cause this week. Their main objective this month will be to see the S&P 500 break above they resistance at 1107.25 as this will attract more buyers.
Bear View
Bears main goal remains to break below 1036.75, a move that would open the door for further aggressive selling. They may have to be patient however as quiet summer trading may cause their charge to slow.
Futex View
We still believe in a strategy of selling into rallies as we think the current down move still has some way to go. A break of 1036.75 this week seems a distinct possibility below which we believe some sell stops will exist. It must be noted however the next leg may not occur until after the summer has passed so patience remains key.
Tags: Equity Index, learn to trade, market profile
