S&P may set new all time highs before year-end

Fundamental View

Yesterday the S&P 500 completed back-to-back 2% plus up days taking the index almost 100 points to the upside to make it the best two day upside of the whole year. The bulls just cannot be kept down for any length of time it would seem and the rebounds are remarkable every time. Santa delivered his rally after all. Also of note, T-Notes have had their worst two day run for the whole of 2014 as the inverse relationship between these two assets strengthened. This is strange in an FOMC week when monetary policy influences normally create short term positive correlation between bonds and equity prices. This is more evidence that Yellen managed to deliver both a hawkish and dovish statement on Wednesday which ultimately lead to risk-on. The other big mover yesterday was crude oil which firstly rallied $2.5 to test the $59 handle for the second day running with this price now a strong double top. Crude then reversed $5, which is pretty much 10%, throughout the afternoon.

Today’s View

So far today news flow has been incredibly slow. This is set to continue into the afternoon with no economic data of any note on the schedule. The only thing that may be of interest is Fed's Evans (dovish) speaking at 15.00 but it is unlikely he can add anything new seeing as Yellen's press conference was less than 48 hours ago. The Dax has had some sharp movement this morning with a 50 point break out down through its pivot level. This is evidence that the low liquidity situation continues and markets are liable to have sudden sharp, exaggerated moves of just modest volume. Risk parameters need to be tight. The S&P came within 5 points of its all time high this morning and we feel that this completes the short term rebound for now. The index may well set new all time highs before year end but we prefer the downside this afternoon. We also expect some Dollar strength and Crude oil to perhaps test the low of the week at $53.60.

This will be the final Amplify US Strategy Report of 2014. We hope you all have a great festive break and we look forward to returning with batteries fully charged on the 5th January.

Alternative View

Ahead of the Christmas break, liquidity is very thin due to a shallow order-book. Traders are recommended to take on entries at technical levels should no clear momentum present itself.