S&P 500: Room to move still?

November 8, 2013

Overnight the US received a major boost for the economy, as GDP for the year exceeded expectations coming in at 2.8%; this despite the recent government shutdown which was forecast to have a major impact on GDP of roughly 0.6% for the quarter. S&P 500 futures reacted accordingly by dropping heavily after touching an all time high.

This drop might leave a few traders scratching their heads, and fair enough. If the economy is doing well why would we see a drop! The flip side of the coin is that the equity markets in their current state have been pumped up by Quantitve easing, and the worry for many traders out there is that once the FED starts to taper quantitative easing it will lead to a sell off in equity markets and index’s.

The possibility of tapering though will come into perspective better tonight when we have the monthly nonfarm payroll report which outlines job growth in the US. It’s expected to be quite weak on the back of uncertainty last month as a result of the government shutdown. However, if it is strong it could certainly lead the FED to talk up the idea of starting tapering as soon as the new year rolls around.

So if we are to see positive job numbers its likely we will see a fall in the index overall. Current resistance levels are very tight at 15656 and 15750, and are unlikely to be tested again in the near term. I believe it's important to watch the current bullish trend line and pay careful attention as the market dips down. The last breakout I believe was an over-stretch for the market, and the RSI show’s it was heavily oversold. Any future break out’s are more a possibility now than before, as the trend line runs close to the current all time high. Any breakout lower would have to break through major support levels at 15408,15037 and 14750. However if it trended through without aggressive overselling and crashed through the 15037 level and then continued lower through 14750 this would signal a bearish trend taking hold in the market.  For now though watching tonight’s results will be important especially for the Index traders out there.

Written by Alex Gurr, Currency Analyst at Blackwell Global.

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