S&P 500: Alibaba IPO Stokes Market Euphoria?

Global equity market are euphoric today after Scotland’s populace rejected independence, removing a major uncertainty from the global market landscape (for more on the impact of Scotland’s vote on the UK’s FTSE index, see my colleague Fawad Razaqzada’s piece from earlier today). Another cause célèbre for stocks is Alibaba’s highly-anticipated IPO, which is priced to be the largest public offering of all-time at $21.8B, dwarfing Facebook’s $16B IPO in 2012 and Visa’s $17.9B IPO in 2008 (see Galvan Research’s preview for more on the company and the IPO). Because most of its business is in China, the stock will not be included in either the S&P 500 or NASDAQ index, but spirits are still running extremely high around the historic IPO.

The S&P500 traded up to a new all-time high of 2019 and beyond that, there are a number of anecdotal signs that traders are growing euphoric: an informal guess-the-closing-price-of-Alibaba pool in our office featured estimated prices as high as $102 (from the expected opening price of $68), while the popular Marketwatch website crashed under all the traffic it received around the market open. Much like we discussed with USDJPY yesterday, extreme moves often run farther and faster than many traders expect, though they tend to end with sharp reversals.

Technical View: S&P500

Looking to the chart, the S&P 500 index remains clearly in bullish territory, with prices recently finding support at their 50-day moving average near 1975. The longer-term bullish channel continues to guide prices higher, and the index could still rally toward 2030-35 next week before hitting the top of the channel.

As for the secondary indicators, the RSI has been in bullish territory (>40) for the vast majority of the year and is not yet overbought, favoring further gains from here. Meanwhile, the MACD indicator is crossing back above its signal line, signaling a return of medium-term bullish momentum.

Despite the potentially frothy sentiment around today’s Alibaba IPO, the trend in the S&P 500 and other major US indices remains bullish. In the short term, a continuation up to the top of the bullish channel at 2030-35 appears likely, while only a break below the 50-day MA at 1975 would raise any yellow flags for stock bulls. Market participants often make trading harder than it should be; in this case, we favor the classic trading axiom, “The trend is your friend.”