Are global stock markets unsinkable?
Many investors and traders believe a significant move to the downside in stock markets is well overdue. Media commentators are calling an outright crash. Some of the most respected hedge fund managers are building significant short positions to take advantage of what they see as an imminent burst of the debt bubble. However, stock markets absolutely refuse to go down. So how long can this continue?
If the stock markets were to crash, this would probably be the most highly anticipated crash ever. In my experience a crash only occurs when the vast majority of investors don’t see it coming.
US indices: the S&P 500
The E-mini S&P 500 recently looked like it could finally see at least some short-term profit-taking. We broke below the eight-month trendline support and 100-day moving average in the middle of October.
In fact we closed below the blue 100-day moving average in the mid-to-high 2130s for eight days in a row. This is the first time this has happened since the last sell-off we encountered in December of last year. Several attempts to push prices higher in that two-week period met with selling pressure, and I thought this could be the start of a move to the downside, but the first day of this week proved me wrong.
The December E-mini S&P futures contract is now trying to break above the six-week trendline resistance at 2146/2149. This would confirm a more positive outlook in the short term, targeting the October highs at 2163/2168 and perhaps as far as the late-September high at 2172/2173. If a short squeeze continues we will be testing the all-time high at 2191 before Christmas, exactly two months from today.
US indices: the Dow
In my opinion the daily chart for the E-mini Dow Jones is even more negative. The index broke decisively through the eight-month trendline support on 11 October. It also settled below the blue 100-day moving average at around the 18,140/18,160 area. However, after bottoming at 17,868 this month, just 20 ticks above this year’s 23.6% Fibonacci support at 17,848, the market has refused to turn lower and has just traded sideways.
Although we are still closing below the blue 100-day moving average at 18,165, as we have done for 10 days in a row, bears just cannot take control of this market. You have to wonder now if we will see a close above that blue line today and a test of seven-week trendline resistance at 18,200/18,210.
Bulls will have to push up through the eight-month trendline resistance at 18,310/320 to be firmly back in control. This would also push us back above the October high. If so we would initially target the September high of 18,336 then 18,460/470 and the September high at 18,548. This isn’t too far from the all-time high at 18,623, set in August of this year.
The Nasdaq and the DAX
The E-mini Nasdaq left bears in no doubt that they had lost any chance of pushing prices lower into the end of the year, as we broke through the previous all-time high of 4901.5 yesterday, so far reaching 4915 as I write. With bulls firmly in control, we could now go on to target 4928/32 and two-month trendline resistance at 4940/44. If this does not hold the rally, we should look for 4951/54 then 4978/81.
On the other side of the pond the DAX 30 is into its second week of gains. The target now is to break above the summer high set in August at 10,804. We only reached 10,818 yesterday and pulled back quite sharply. A break higher this week, however, is not out of the question. This would initially target 10860/870 and then 10990.
Technical Analyst & Trader
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