It looks like we are finally getting that pull back we were waiting for. Futures are indicating a strong pull back this morning close to the key 6,000 level. Keep in mind the FED last night gave markets pretty much what they wanted, confirming they will continue the current path of stimulus. They also acknowledged that they expect a quick recovery in GDP next year. In addition, we also saw the NASDAQ push into all-time highs overnight. So, at this stage we expect the current move down to be just profit taking and we will be looking to buy in or accumulate when the market finds support.
All-time highs for the SP500 and the XJO could very much be a reality this year if we continue to see world economies get back up and running. This coupled with current stimulus levels should keep the sellers on the sidelines.
Earnings sentiment for companies remain low, indicating weak reporting is expected for July and August, however, that was priced in with the falls. Because we already expect bad reporting this season, rather than looking for growth we will be looking to see how bad the report is compared to expectations. Then we need to look at forwarding expectations as compared to price action and look at forward PE ratios.
With U.S markets down over night, and their futures pushing into the red, we are expected to have a decent fall on open this morning and test 6000 support. The market should hold this key level at least for today and look across the waters tonight for more leads.
The pull back in markets is ironically healthy for the uptrend we are in. It helps sustain and strengthen it. Markets cannot just rally, they need to move up in a wave like pattern with higher peaks and troughs for it to be sustained. Despite the negative move today, the market is still trading in an uptrend, and if it holds 6000, opportunities for bullish trades should be right around the corner.
Many investors and traders out there are probably in a similar boat to us: they have/are taking profits on their trades, which causes the market to fall, and are waiting for a market pullback/breather so they can get back in.
US shares fell for a second day overnight with investors assessing the Fed’s willingness to continue extreme monetary stimulus and worries of a second wave of virus cases. The Fed signalled that they would keep rates near zero and continue the pace of bond purchases for some time, possibly years to come, but also warned that the economy was pretty weak (with 2020 GDP forecasts at -6.5%); there was no talk of negative rates which could also have disappointed investors. On the virus front, Texas recorded its highest one-day increase in virus cases, with some other states reporting high numbers as well, sparking fears that we may be entering a second wave of COVID-19 cases. Many are simply suggesting that stocks were overheated however, and that some profit taking was to be expected with the Fed announcing no new policy measures.
Oil and gas stocks were the weakest of the major US sectors overnight, with financials also falling strongly. Tech stocks were the only major sector to close higher, with Apple closing significantly higher, but even then, more tech stocks closed in the red than those in the green.
This morning update is just a small excerpt from this provided by the advisers at Emerald Financial – find out more about their new equity data and research subscription here.