Market News & Analysis
S&P500 remains range bound despite supportive moves in bonds & FX
Tony Sycamore October 22, 2019 5:00 AM
As noted yesterday, the U.S. dollar index, the DXY is on course for its largest monthly fall since January 2018. The U.S dollar has fallen against a backdrop of rising bond yields and a steepening of the U.S. yield curve. Notably the previously inverted U.S. 3mth – 10 year bond spread frequently cited as a barometer of recession is now trading back in positive territory.
The catalysts for the moves mentioned above have been a lowering of interest rates from central banks and an easing in geopolitical tail risks that include Brexit and the U.S. - China trade war. Much to the annoyance of the doomsday crowd who only ever recommend buying bonds and the U.S. dollar, growth fears have receded for now.
In theory, U.S. stocks and the S&P500 should be a beneficiary of this shift in the macro narrative for reasons including a lower U.S. dollar helps make U.S. exports more competitive. However, the S&P 500 appears unconvinced and unwilling to break higher, despite closing for the last five sessions just 1.5% below all-time highs.
This lack of commitment is also reflected by investor sentiment towards equities which remains subdued by historical standards. Although last week’s AAII bulls and bears sentiment index bounced to 33.6% bullish from a very low reading of 20.3% the previous week, the gauge sits below its long-term historical average of 38.0%. Until the S&P500 shows it’s hand this reading is unlikely to significantly change.
From a technical perspective, while the S&P500 remains below trendline resistance and recent highs 3020/3030, it is at risk of another corrective leg lower towards trendline support at 2900 and possibly towards the August low at 2775.75. A break of support 2860/50 area would be an indication this move lower has commenced.
Conversely, should the S&P500 hold onto recent gains and then breaks/closes above trendline resistance and year to date highs 3020/3030 area, it would confirm the correction which started in late August is complete and that the uptrend has resumed.
Source Tradingview. The figures stated areas of the 22nd of October 2019. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
TECH-FX TRADING PTY LTD (ACN 617 797 645) is an Authorised Representative (001255203) of JB Alpha Ltd (ABN 76 131 376 415) which holds an Australian Financial Services Licence (AFSL no. 327075)
Trading foreign exchange, futures and CFDs on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange, futures or CFDs you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss in excess of your deposited funds and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange, futures and CFD trading, and seek advice from an independent financial advisor if you have any doubts. It is important to note that past performance is not a reliable indicator of future performance.
Any advice provided is general advice only. It is important to note that:
- The advice has been prepared without taking into account the client’s objectives, financial situation or needs.
- The client should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before following the advice.
- If the advice relates to the acquisition or possible acquisition of a particular financial product, the client should obtain a copy of, and consider, the PDS for that product before making any decision.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.