Equity indices in the US are still either printing new all-time highs in the case of the Nasdaq, or hovering just below their old highs, which is especially the case with the S&P 500 today.
Stocks have been continually pushing higher since March not only because of optimism over a sharp economic recovery and hopes there will be an effective vaccine soon, but more to the point due to expectations that the Fed will maintain its expansionary monetary policy stance for a long period of time, with QE running at full throttle again.
Admittedly, the US stock markets do look overbought and there are many bearish macro factors that could weigh on stock prices going forward. For example, as we get closer to US elections, the prospects of business-friendly Donald Trump potentially losing could lead to outflows from US stock markets.
However, momentum is currently positive as the actions of the Fed and other major central banks continue to drive yield-seeking investors into racier equities and away from bonds.
So, while things could look a lot different in the not-too-distant future, the short-term picture certainly looks bullish right now.
Indeed, the fact that the S&P has been coiling in a very tight range below its all-time highs suggest the pressure is building for a potential breakout to new unchartered territories, possibly as early as today. The S&P 500 E-mini futures daily chart, below, shows the index is poking its head above the highs of the last 5 sessions, thus eroding bears’ control further.
Therefore, from a trading point of view, I would still look for bullish rather than bearish entries until the charts tell us otherwise.
Now the breakout could obviously fail, resulting in a
false breakout reversal scenario which would be bearish. But we need to see that first before looking for bearish price action.
Source: TradingView.com and ThinkMarkets