US index futures recovered from earlier lows, while the FTSE traded higher, partly supported by Vodafone’s better-than-expected results.
Tuesday has got off to a slow start amid the lack of any major economic news and as investors weigh optimism over the gradual re-opening of economies against concerns over a second wave of coronavirus cases. A cluster of new cases in Wuhun, South Korea and Germany serves as a warning that the infection rates could spike again if lockdown measures are eased too quickly. So, a move back to normality could take a long time. This underscores analyst concerns that the sharp rebound we have seen in US stock markets especially, could unravel quickly if Covid-19 sticks around for longer than expected and/or if the economy does not recover like the Nasdaq has: V-shaped. Indeed, Goldman Sachs has warned that the markets may have risen too far, and that the S&P 500 could drop around 20% over the next three months.
However, for now, the markets are continuing to climb a wall of worry. At the time of writing, US index futures had recovered from their earlier lows, while the FTSE traded higher, partly supported by Vodafone’s better-than-expected results. Asian markets had closed lower after a mixed performance on Wall Street the day before.
From a technical point of view, the path of least resistance continues to remain to the upside for global indices as optimism over re-opening of the global economy is currently playing a bigger role on investor sentiment than the above concerns. That said, the S&P has struggled to get through THIS resistance zone we have been monitoring for a while:
Source: TradingView and ThinkMarkets
In the above zone, we have an old support area converging with the 61.8% Fibonacci retracement against the all-time high, with the 200-day average coming in at just above the psychologically-important 3,000 level. But with the index residing inside a bullish channel and above the rising 21-day exponential moving average, the short-term trend is objectively bullish and will remain that way until these break down. The bears should therefore remain patient until the path of least resistance becomes to the downside again. The bulls may wish to proceed with extra caution at these elevated levels.