Chart of the Day US500 (S&P500)
US500 (S&P500) Potential Reversal Zone - Probable Price Path
Delayed US-China trade talks and disappointing US retail sales which missed market forecasts, coupled with the continued US Congressional impasse on fresh fiscal stimulus, may keep a lid on risk sentiments to start the week. The S&P500 closed slightly lower by 0.02% on Friday, while VIX also slide to 22.05. UST bonds treaded water with the 10-year yield down 1bp at 0.71%, but at least the $112b of supply is out of the way. The 3-month LIBOR eased to 0.2704%. Elsewhere, 2Q GDP cues were also weak with Japan at -27.8% qoq sa annualised and Malaysia at -17.1% yoy. Separately, New Zealand also delayed its national election by four weeks to 17 October due to the Covid-19 resurgence, whilst the state of Victoria in Australia also extended its state of emergency.
With the indefinite postponement of US-China trade talks which were supposed to be the 6-month review of the Phase 1 agreement, other flash points include the Trump administration’s approval of F-16 military jet sale to Taiwan as well as Trump’s order for TikTok to sell its US assets. Retail sales rose 1.2% mom in July, led by online sales and grocery stores, but the University of Michigan sentiment index remained weak in August at 72.8 (near its pandemic low of 71.8 in April), whereas industrial production rose for the third month by 3.0% mom in July following a 5.7% gain in June.
This week’s US economic docket will kick off on Monday with the Empire manufacturing index for August, followed by the NAHB housing market index for August. On Tuesday, housing starts and building permits for July will be the highlight. The weekly MBA mortgage applications for the week ending 14 August will be the only data release on Wednesday. Thursday sees the release of the usual weekly initial jobless claims, alongside the Philadelphia Fed business outlook for August and July’s leading index. The economic docket will round up with the release of the preliminary readings of the US Markit PMIs for August as well as July’s existing home sales figures.
From a technical and trading perspective, the S&P500 is retesting the pre pandemic highs at 3400 whist the immediate path of least resistance certainly seems higher a closing breach of 3435 opening 3718 as the next upside objective, it is noteworthy that we are witnessing significant momentum divergence, similar divergence was witnessed prior to the stock market declines in 2000/2007. Price is also in a potential broadening top pattern from the 2009 lows, a weekly close below 3325 would encourage the potential for a bearish reversal, this would open immediate downside objectives at 3000, 2800 and 2400.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!