US stock markets head back towards all-time highs
The E-mini S&P bottomed out in February at a low of 1802.50 and in the last two months has rocketed to a high on 19 April of 2090. I wonder if anyone could really have predicted a 16% rally in just two months – certainly not me.
In the weekly chart below you can see the nice double bottom in January and February as prices spiked higher just above the 200-week moving average (the red line). Once we beat the blue 100-week moving average line this acted as perfect support for a slower but clear move higher.
I see nothing to concern the bulls in the weekly chart. At worst it is obvious that the market has been in a sideways trend for 18 months, but there is no pattern that tells me a collapse is imminent.
As you can see in the daily chart below, it has been almost a straight line move higher over the past two months, with only four small corrections of about 40 points. Not much of a correction if you were trying to jump on the rally.
You can also see in the daily chart how we are testing an important 11-month trendline which joins the high on 19 May last year at 2134 with the highs for July and November. As I write we have hit this perfectly at 2090/2091 and we are just holding below it. This is without question the most important resistance of the week, as we become overbought. Failure here could trigger another correction of around 40 points or perhaps something more significant down to around the 2025/2020 area. However, I don’t see any reason for the start of a major move to the downside yet. I would need more evidence.
The December high is at 2105, so a break up through here sees bulls continuing to push this market higher, with very little to stop them hitting the November highs at 2110 and then the July high at 2125/2126. From here, it’s a short hop to the all-time high at 2134. Obviously this is absolutely crucial and, although it would make no sense to me on a fundamental basis, the way the market is behaving, it wouldn’t surprise me if we broke through this resistance.
If I were looking for something negative to hold on to, I could argue that the E-mini Nasdaq may be forming a right shoulder in a year-long head and shoulders pattern when I look at the weekly chart below.
However, this is pure speculation at this stage, as we haven’t even started to turn lower and the neckline is a long way off around the 3900 area. It’s not until the neckline is broken that we have confirmation of a topping pattern.
Even the European markets, which have been underperforming the US for a year or so, have sprung to life this week with the DAX June futures finally breaking through the March high at 10,153. Another positive signal is that we’ve closed above the 100-day moving average for the first time this year and for three days in a row now.
It looks like we can head towards the 200-day moving average around the 10,290 area and not far above this the 100-week moving average at 10,330. I would suggest a push through 10,380 would leave little to hold the bulls back from a summer rally.
The FTSE 100, which had been so weak since the summer of 2015, is experiencing a pretty good bounce back and is itself now holding above the 200-day moving average. We are trading at 6298, well above the March high at 6244, and could initially push on to test the 200-week moving average at 6400/6410.
Technical Analyst & Trader
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