Indices Trading Charts

US500 breaks higher with 3400 in sight

A bullish session on Wall Street and the S&P 500 (US500) may have found its mojo again. The US500 has broken out of the September descending channel on the daily chart, after impressive breadth on the day with more than 90% of its stocks closing higher.

Price is now eyeing a move back toward the pre-COVID highs just below the 3400 handle. The bulls failed to hold this level mid-September - so is a breakout of the descending channel the conviction markets need to trade higher again? Turnover for the S&P 500 was a touch below the 30-day average in yesterday’s session, so I’ll be watching how price develops today and throughout the week.

But it wasn’t only a break out of the descending channel, price also took out the 20-day EMA (blue), 50-EMA (purple), and 5-EMA (green) with a higher close. With the 20 and 50 getting closer to each other, the bulls will not want to see them cross over, as this would be a bearish signal of possible trend reversal.

However plenty of uncertainty persists. As the US election approaches, investors are bracing for what the possible administrations may mean for financial markets, as well as the likelihood of a contested result. Daily coronavirus cases in the US remain above 30,000 per day. The US stock market could well be in for some choppy movement over the coming weeks. 

Looking more broadly across the stock market, small-cap stock index the Russell 2000 (US2000) has reached the top of its own descending channel after defending the 200MA last week, although price has not yet broken out of the bearish channel. This is one to keep an eye on - a bullish break from the small-cap index may give the US500 bulls further encouragement.

Sean MacLean

Research Strategist

Is today the day for an S&P 500 record high?

The S&P 500 (US500) is a whisker away from setting new record highs. The equity benchmark has barely reacted to US Congress failing to reach a fiscal deal before recess and the index has been testing resistance for a week now. Perhaps it’s on confidence that the Fed is there as a backstop, or perhaps increasing pressure on Chinese tech companies is US tech yet another boost. Whatever the case, the US500 looks positioned for new records and a path to 3500.

The equity rebound since March has been highly concentrated in tech companies. They’re aggressive growth stocks like Amazon (AMZN.O), Microsoft (MSFT.O), and Apple (AAPL.O), and their outperformance can be seen on the tech-index NAS100, which has been setting record highs since early June.

Consumer discretionary stocks have also posted stellar performance, as the US consumer seems to lead the economic recovery. This could all be stopped in its tracks after US Congress failed to agree on a new fiscal relief package before shutting down for recess, with democrats and republicans about $2tn apart in proposals. As the fiscal relief dries up, spending will also fall - and if consumption data starts to slow as a result, well that could be bad news for stocks.

Looking at technicals, take note of the triangle formation on the weekly chart since early 2018. The top of the triangle may just provide a ceiling to any potential upside, yet does offer a little room for a move above even 3500. In the longer-term, a breakout above this triangle could be a game changer. 

Weekly chart: US500. Chart source data: Metaquotes MT5. 

In the nearer-term, I’m watching for a US500 record high on a daily closing basis. Is today the day it finally happens? And when it happens, will it bring more equity bulls into the market?

Sean MacLean

Research Strategist

ASX tests 200-MA as earnings roll in

ASX 200 futures (AUS200) tested the 200-day moving average (black line) overnight while European stocks gained and US equities saw rotation from growth to value stocks.

The 200-MA is a critical level for equity markets. Many traders consider it a buyers’ market if price is above and a sellers’ market below. While major US indices (NAS100, US500) and even Germany’s DAX (GER30) have staged strong recoveries, the Australian benchmark has fallen behind. So as the AUS200 navigates domestic earnings season as well as increasing global risk appetite, do watch the 200-MA. A daily close above the popular indicator would be a bullish sign and could shift up the dynamics of this slower market.

The ASX opened higher this morning after gold’s biggest daily selloff in seven years while Wall Street saw some rotation from growth to value stocks. The trading day kicked off with an earnings report from Australia’s biggest bank CBA, which revealed an H2 cash profit below consensus expectations and a 98¢ dividend. The AUS200 has moved lower today, with gold producers falling alongside the precious metal’s largest daily sell-off in seven years.

The earnings season runs through to the end of the month - and it could be a bumpy ride with expectations it could be the worst on record. Whichever way the index moves, once the reporting period is over, investors will be hoping the worst is over. All the while, I’ll be keeping my eye on that 200-day MA to see if this market takes a bullish turn.

Sean MacLean

Research Strategist

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