SP500 Eyes Record Highs, Nikkei Appears Less Confident

Trade tensions are thawing, Trump and Xi are besties again, allowing risk assets to rally as a result.  Still, some appear more bullish than others...

The S&P500 has record highs within easy reach and momentum suggests we could test this key milestone over by the end of the week. The breakout from range was seen on a gap high. That is hasn’t been filled is another sign as strength, as such a move is considered to be a breakaway gap, which tends to occur at the beginning of a move after leaving a basing pattern.

• A small bullish doji marks the swing low at 2,957. As the gap has not been filled, we remain bullish above the structural low.
• The S&P500 closed just above the 3k milestone but, due to the positive sentiment across markets.
  We expect it to re-test the record highs this week (and possibly even today). There’s also no bearish divergence with RSI, and it hasn’t reached overbought on the four-hour chart.
• As this is such a key level, it’s plausible to expect a price reaction triggered by profit taking.
  Yet the bullish structure assumes an eventual break higher and for 2,957 to remain untested ahead of the breakout.
• We’d keep an open target at new highs and trail a stop accordingly.

The FTSE 100 came close to breaking 7,400, although there’s no cigar yet. The index has crept back from yesterday’s high in early trade, but if it can hold above the 7,300 area then perhaps a breakout is imminent. A tad on the messy side, but there’s a pattern reminiscent of an inverted head and shoulders. However, the FTSE is mostly being propped up by a global shift in sentiment and recent gains have failed to keep up with ay of its peers (such as the DAX), so we suspect upside may be limited.

• Look for 7,300 to support to hold ahead of a break above 7,400. The internal trendline can be used as an interim target.
• As FTSE has lagged its peers, we’re bullish near-term but cautions further out.
• A break below 7,200 invalidates the near-term bullish bias.

The Nikki has broken the bearish trendline from the September high, trades just beneath the July highs. As it trades just near a resistance level, it entices the potential for a pullback. However, the probability of a retracement appears highs because USD/JPY and the US2-JP2 yr yield differentials have also tested their bearish trendlines.

• Counter-trend trades could look to fade into minor rallies beneath 2,185, and seek a target around the broken trendline
• Bulls could seek to buy a dip once a new level of support has been established.
• Alternatively, bulls could look to wait for a break above 2,185 before entering long.
  Especially if we see US indices break to new highs (along with USD/JPY and the US2-JP2 differential.