StockDesk Monday Update: S&P Ral...
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May
6
Richard Cox
StockDesk Monday Update: S&P Rallies above 1600 on Strong Employment Numbers
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Stock markets traded sideways for most of last week, as a large number of event risks kept traders on the sidelines and unwilling to commit to positions until the later half of the week.  The first factor came with Wednesday’s Federal Reserve meeting, which resulted in no change in interest rates (as widely expected) but included a somewhat ambiguous policy statement that left the door open to additional stimulus measures.  Specifically, the statement said the Fed is willing to “increase or reduce” the rate of its bond purchasing program, depending on the strength seen in the macro economic data.

While comments like this might seem frustratingly vague, it does somewhat change the initial expectation of the analyst community which has been preparing itself for an end to the Fed’s third round of quantitative easing.  On balance, this was interpreted as more positive than negative and stock prices held close to their monthly highs into Friday’s employment data.

ECB Rate Decision, NFP Data Add to Optimism

Thursday’s main event was the ECB interest rate decision, which resulted in a 25 basis point rate reduction (to all-time lows at 0.5%).  This helps to alleviate some of the external uncertainty created by potential debt defaults in the region.  Into Friday, end-of-week fireworks were created by the better than expected Non Farm Payrolls numbers which came in at 165,000 for the month of April.  This number was particularly surprising, given the weakness seen in the ADP private employment report seen earlier in the week (119,000 jobs vs. 150,000 expected).

This led to whisper numbers for the NFPs in the range of 125,000, so the final result led to a forceful push in the S&P.  The US benchmark closed above 1600 for the first time and this optimism is set to continue near term, as the data docket is relatively devoid of potential risks that could damage investor sentiment.  Ahead this week, we will see earnings from News Corp, Disney, and Toyota.

Chart Perspective

Toyota Motors (TM):  


Toyota

Toyota is holding near its monthly highs and elevated indicator readings are suggesting we will need to see a downside correction before we can make another run higher.  Major Fibonacci and historical support is seen at 110.30.  This area marks the 38.2% retracement of the rally from 99.80 (this month’s rally).  This area can be used as a buy zone for traders looking to get in at lower levels.  Resistance has moved up to 116.80.

Disney (DIS):  


Disne

Disney is making an impressive bull run and is making new highs at time of writing.  This makes picking resistance levels difficult, so while the momentum is clearly to the topside, the prudent move is to wait for corrective dips before establishing new long positions.  Moving averages and the support line from the 30-minute uptrend channel coincide with resistance turned support at 63.80.  This area can be used to establish new long positions.  An hourly close below this level is suggestive of a downside correction.

 



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