Despite the fact that global equities have been declining a little bit since the announcement of Barclays scandal with Qatar, global equities are still near their record levels.
At the same time, the bull market seems to be getting stronger and stronger day by day, with no signs of a correction anytime soon, and that raises some red flags and brings memories of how the markets were rising right before the financial crises.
However and so far, no signs of a notable correction yet, debt levels are still rising, but there is no significant catalyst for a notable correction anytime soon.
FTSE 100 Consolidation
Since Mid-May of this year until today, FTSE100 has been trading within a tight range, between its 7500 record high area and 7400 support area, with no clear above or below those key levels.
However, the tight range comes on the back of the uncertainty throughout the past few months regarding the general elections, which ended up with a hung parliament, with no signs of any coalition till now and the uncertainty regarding Brexit negotiations, which kicked off on Monday.
In the meantime, such consolidation is likely to come to an end soon, especially when we get more details about how the negotiations are going.
From a technical point of view, FTSE is trading in a tight range as shown on the chart. Today, the index slipped back on stronger sterling as one of the Bank of England members said that he would vote to raise the rate and join the three other members, which means that the next vote might show a notable split. In return, this would likely to push stocks lower.
In the meantime, FTSE crossed below 7440 support area, which increases the chances for another leg lower to the next key support at 7390, which held since Mid-May of this year.
Only a breakthrough that support would increase the possibility of a deeper correction, probably toward 7344 where buyers are likely to appear.
Otherwise, a stabilization above the mentioned levels would keep the medium to long-term bullish outlook unchanged, with a possibility to break above the recent highs around 7560.
S&P500 Non-Stop Rally
S&P500 continued its bull run, even after the notable decline in technology stocks last week. Thanks to the Federal Reserve surprise of a hawkish hike.
However, some would say that a hawkish Fed should be negative for stocks. This is true. However, the potential plan to unwind the Fed’s balance sheet is not clear yet. Moreover, the size of the tapering is very small compared to the Fed’s 4.7 Trillion USD balance sheet.
Moreover, the economic releases for the past few weeks have been very disappointing. The US Surprise Index is now at the lowest level since 2011, which means that the US data showed the most disappointing outcomes since 2011, which eases the chances for another rate hike this year, or even to taper the Fed’s balance sheet.
From a technical point of view, looking at the chart above, the index has been trading within a sideway channel since February, until the breakout in May, leading to another run to a new record high. Now with yesterday’s decline, there is a possibility for a short-term retracement.
Yet, such retracement is likely to be very limited well above the breakout level around 2400. As long as the index continues to trade above that resistance, I would be interested in buying for another bull run toward a new record high.
The only thing that would lead us to consider shorting if the index manages to breakthrough 2324 support area. If so, this would be the first sign for a notable correction ahead.