Record Close for S&P 500 – The Bulls are Dominating this Market
Eric Furstenberg • 3 min read
As you may have noticed, we're busy expanding the range of financial instruments we analyze and discuss on our blog. We're also going to offer signals on these instruments soon, which are certain stock indices and commodities. I'm really excited about this because as a fund manager I know that there is great power in diversification. I trade all kinds of instruments which include stock indices and commodities, and I can tell you that these are great additions to traditional forex trading. With all that said, let's look at some of these new instruments…
S&P 500 – The Best Single Gauge of Large-cap U.S. Equities
The American S&P 500 stock market index has performed well over the space of several decades. Although it has been a bumpy ride, this index has handsomely rewarded each and every investor who has bought it and held it until now.
On Friday, this index posted a record close at 2277.62. Since the US presidential election in November last year, the value of this instrument has been rising very aggressively. Let’s take a look at a daily chart of this index:
S&P 500 Daily Chart
This is a picture of an extremely bullish market. There is no reason for us to be interested in playing the short side here. I will be on the lookout for buying opportunities, especially if the price breaks through the recent all-time high which was set on the 6th of January.
In the chart above you’ll notice that the price is above the 200-day moving average, as well as the 20-day exponential moving average. So the price is above the longer term and shorter term moving averages, which enforces my bullish view.
Nikkei 225 – Bullish, but Struggling
Nikkei 225 Daily Chart
The Nikkei 225 is a stock market index for the Tokyo Stock Exchange.
Although the bias for this index is bullish, it has run into a zone of resistance in the last couple of trading days. The Nikkei at least managed to close above its 20-day exponential moving average on Friday. This index appears to be much less bullish than the S&P 500 at this stage. If you’re looking for an index to buy, the S&P may be the better option between these two at this stage.
GBP/JPY – The Bears are Feasting!
The British Pound has taken a knock in the last couple of trading days and has lost some more value since the start of this year. The Pound has even traded lower against the US Dollar which has been really weak as well. The Dollar has been giving back gains against all of the major currencies except the British Pound.
In contrast to these two currencies, the Japanese Yen has been performing really well and has been pushing back both the Dollar and the Pound in the last couple of trading days.
So why would we sell the Pound against a relatively weak currency like the US Dollar if we could sell it against a currency much stronger than the Dollar? The Japanese Yen seems like the perfect currency to employ against the Pound at this stage. Let’s look at the GBP/JPY:
GBP/JPY Daily Chart
This is serious bearish momentum! The pair is once again heading in the direction of the long-term downtrend which started back in 2015.
Whether we’ll see a meaningful pullback this week is uncertain. When the bearish momentum is as strong as it currently is on this pair, we often don’t get a major retracement to initiate short entries from. In that case, we can use retracements on smaller timeframes, like for example, an hourly or a 4-hour chart.
We have some heavy UK economic data scheduled for this week, as well as a speech by UK Prime Minister Theresa May on Tuesday. If the markets don't like her speech, it could severely hurt the Pound. This would be great for anyone holding short exposure on the GBP/JPY.
On Tuesday, we have UK CPI numbers at 14:30 GMT and on Wednesday we have UK employment numbers at 09:30 GMT.
I hope you enjoy a profitable week in the markets, good luck trading out there!