Broad market sentiment has been shaken slightly in the last week or so, as expectations of the tightening of Fed monetary policy have pulled yields and the US dollar higher. However, we see this weakness as another opportunity to buy over the medium term.
- We remain bullish on indices
- Wall Street continues to find buyers into weakness within uptrend channels
- European markets developing opportunities having fallen back to find support around key breakouts
Bullish on indices
Indices have been incredibly strong since October. Markets were helped by an uncertain US dollar outlook in October and positive risk appetite, helped by an excellent US Q3 corporate earnings season.
The US dollar has driven decisively higher in November and this has created a more uncertain trading outlook for indices. However, there is seemingly still a strong appetite to buy in equity markets.
The standout performer over the period is still the high growth NASDAQ, which also drives outperformance of the S&P 500 too. If bond yields settle down, then it is likely that this outperformance of NASDAQ and S&P 500 will continue.
Wall Street continues to find willing buyers
Looking at the Wall Street markets, the huge uptrend channels of the tech-dominated indices show a continued attraction for buyers. Both S&P 500 futures and NASDAQ 100 futures remain strong within their channels.
The S&P 500 futures (MT5 code: SP500ft) have a near-term ranging outlook but pushing towards resistance once more. There is still a caveat to this, with the mild negative divergence on the RSI and a “bearish engulfing” candlestick from Monday. Our preference is to buy into weakness towards the good support building between 4625/4649, but how US traders come back from Thanksgiving will be key. The current set-up seems to be building for another breakout to all-time high ground above 4740.
There is a similar outlook for the NASDAQ 100 futures (MT5 code: NAS100ft). A choppy range has developed in the past few weeks, with the market supported above the last key breakout at 15,707. There is also another small negative divergence on momentum. Once more, we prefer to buy into weakness towards 15,700/15,900 but are unsure as to whether we will get this opportunity. The medium-term outlook is very well configured for buying into weakness within the uptrend channel.
The technical outlook on the Dow futures (MT5 code: DJ30ft) is slightly different. The outlook over the past six months is very similar to the FTSE 100 Index (see below). This is because both are dominated by value stocks. The Dow is a far more considered market than compared to the NASDAQ (which is packed with high octane growth stocks).
A breakout above 35,550 in October was a key move. The market has since unwound back to form support around the breakout and is looking to push on again. We like the strong support forming around 35,380/35,550 where the RSI has unwound towards 50. This looks to be a market that is ready to renew upside momentum for a retest of the 36,443 all-time high.
European markets have also unwound to key support
As we have already mentioned, the technical outlook for the FTSE 100 (MT5 code: UK100) is very similar to that of the Dow. A breakout above key resistance in October has seen a retracement in November. We believe this is the chance to buy.
Building support around the old breakout levels is an encouraging sign for the bulls. We are bullish on FTSE 100 above 7246 as there is a consolidation rectangle upside projection target of around 7700. We would look to use any weakness towards the breakout support as a chance to buy.
Finally, with the German DAX (MT5 code: GER30), the corrective move in the past week has yet to settle down, but we still see this as an opportunity. The initial breakout support around 16,030 has been breached, but there is further support aroudn15,750/15,815 which has held an initial test. Once more we see bullish momentum having unwound to renew upside potential. We remain confident in the opportunity to buy whilst pivot support of around 15,500 remains intact.