S&P Stock Market The Technical Trader’s View

By: Seven_Days_Ahead

Some analysts have alarmed bulls by pointing out the relative underperformance of the Nasdaq and the Russell indices, the failure to make new highs in key S&P leadership stocks and, yesterday, the 14day RSI registering its highest overbought level since 1971…

We think a pause is possible even a small set back but note that major patterns are still driving the market forward and don’t look exhausted – yet.

The Macro Trader’s view:

Last week was mainly dominated by two events:

- The strong US retail sales report out last Friday, and
- The FOMC rate decision and policy statement released on Tuesday this week.

The retail sales report was important because it showed strength despite some of the worst snow storms to hit the US for a very long time and bodes well for Q1 GDP due to be released next month.

The FOMC rate decision and policy statement re-assured markets that the Fed still intends holding policy at current low levels for an extended period, even though policy makers see clear signs of improvement in the economy.

So what does all this mean for the markets and especially US equities which are our focus for this week?

We judge the correction that hit the S&P in the early part of this year is now over. The sell off was driven mainly by fears arising from the Greek government debt crisis. That crisis began to be tackled by the Greek government implementing a tough austerity package backed by pledges of financial support from other EU/Euro zone leaders. And although that assistance still looks vague, traders have relaxed and turned once more to riskier assets, namely equities.

But the S&P also benefited from two further developments:
- The run of US data has turned stronger after a period of ambiguity, and
- Concerns have abated that a Greek debt default could have led to a domino effect on other highly indebted developed economies, including the US and UK.

So now we have an US environment in which consumer spending is holding up well, business spending is improving and the labour market could be on the brink of turning.

Add to this a benign inflation environment as evidenced by Wednesday’s PPI report which showed that the Fed does have the luxury of time. Time to wait before monetary policy needs to be tightened.

Although we currently think that tightening could begin later this year, low interest rates and strengthening growth should provide the back drop for the S&P to rally further.

Mark Sturdy
John Lewis

Seven Days Ahead
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Mark Sturdy, John Lewis & Philip Allwright, write exclusively for Seven Days Ahead a regulated financial advisor selling professional-level technical and macro analysis and high-performing trade recommendations with detailed risk control for banks, hedge funds, and expert private investors around the world. Check out our subscriptions.

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