US indices were firmly on the march higher on Monday as investors turned bullish on trade talks with China. Major indices were approaching key levels as they continued the inexorable rally since the Christmas Eve massacre of the bulls.
Trading at 2810 at send time, the S&P 500 had broken north of the important 2800 round number but the real test is at the Oct-Nov twin peaks topping out at 2817 (see attached chart). This is where we need to see a close higher to continue being bullish in the near term. That is also sitting pretty much bang on the 78% retracement of the rout late last year from the all-time highs to the Christmas lows. On the Dow we are looking for a break north of the Nov high at 26277.
These are important moments for the major US indices and we await to see whether the recent bull run can be sustained.The mood music on trade is better, the Fed is easier and earnings multiples are not as stretched - something will have to give sooner or later.
In London the FTSE 100 failed to make any real ground despite the improved risk sentiment in global markets. House builders undoubtedly weighed on the market as Persimmon was hit hard (see earlier note) but these relative minnows cannot be entirely blamed - big guns like Shell, BP and HSBC were also in the red.
On Shell and BP, we note that Brent and WTI have both skidded 3% lower in a torrid session, as Trump ratchets up his attacks on OPEC. That's put the mockers on the breakout from the inverse head and shoulders pattern but should not be overly disheartened just yet. Interesting to note that Trump hasn't tweeted on oil since December, but the recent rally of about 23% for oil in 2019 has finally caught his attention.
While Trump has clearly been able to talk the market lower, there is something of a law of diminishing returns from his tweets and jawboning and would expect the Saudis to stay the course on supply curbs for the time being. Arguably though the Saudi-led cartel should be more worried about a resurrected Nopec bill in Congress which has gained ground under Trump. Saudi Arabia has really strangled its own production lately whilst Venezuela's output has fallen due to the ongoing political and economic troubles.
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