Chart of The Day US500 (S&P500)
US500 (S&P500) Potential Reversal Zone & Probable Price Path
US elections continue to hold the markets attention with market players awaiting the outcome. The S&P 500 still ploughed ahead overnight by 1.78%, led by Caterpillar and Honeywell, in anticipation of a Blue Wave that will deliver the fiscal stimulus, while VIX fell to 35.55. UST bonds bearsteepened amid the improvement in risk sentiments, with the 10-year bond yield rising to 0.88% (after testing 0.89% intraday) on concerns about a swift US fiscal stimulus package post-elections. The 3-month LIBOR edged up to 0.2248% while the USD was being chased lower. Meanwhile, as widely expected, RBA cut its cash rate to 0.1%, aligned its 3-year bond yield target to 0.1% as well, and will buy A$100b in 5-10 year bonds over the next 6 months (aggressive!), whereas BNM kept its OPR static at 1.75%. Separately, Ant Financial’s listing in Shanghai and HK was abruptly suspended amid changes to the regulatory environment.
Services PMIs reflect uneven recovery across the globe: US ISM Non-manufacturing Index slipped to 56.6 in October (Sep: 54.8) while the separately released Markit Services Index surged to 56.9 (Sep: 54.6), offering optimism that the US services sector continued to grow last month.
US private sector added much fewer jobs; trade deficit narrowed: The US private sector added 365k jobs in October according to the latest ADP report, a starkly smaller gain in employment compared to September’s 753k and well below analysts’ expectation of 643k. The headline number reflects a mere 17k gains (prior: +198k) in manufacturing jobs and fewer increase in services jobs as well (+348k vs 55k prior). This does not bode well for Friday’s NFP payrolls number and consistent with views that US job growth has slowed. US trade deficit narrowed for the first time in three months to $63.9b in September (Aug: -$67.0b), matching expectation, driven by a jump in exports (+2.6% MOM) and slower import growth (+0.5% MOM) although total trade remained below pre pandemic levels. Mortgage applications rose 3.8% last week (prior: +1.7%), mainly because of the surge in the refinancing segment. Purchasing segment recorded decline.
From a technical and trading perspective, the S&P500 continues to grind ever higher confounding participants gaining over 2% while below 50% of Stocks advanced. That's a lot of weakness but not necessarily Bearish – *unless* it persists (see '99-00, '07-08). Will be critical to watch if Breadth expands or narrows from here. Price is poised to test pivotal interim trendline resistance at 3530, if sufficient supply is seen here we could witness a whipsaw move to retest range support back to 3230/50. A closing breach of the trendline resistance should see an extension higher through 3600 before a pullback to check demand at 3500 before the final extension for this cycle to test the ideal 5th wave objective at 3730/60 before we likely witness more meaningful corrective phase, keep an eye on developing momentum divergence to support this thesis
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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!