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European Futures Set To Recover Losses

10 September 2021

European futures are trading higher today as investors are largely glad that the European Central Bank didn’t take too many hawkish monetary initiatives yesterday. The ECB announced that it will only begin to reduce the pace of its PEPP programme while maintaining every other measure as it is. As always, the announcement brought enormous volatility into the European markets.

In the currency market, we still see more strength for the Euro against the basket of G10 currencies today, and it is likely that the EUR/USD may continue to move higher today as well. Having said that, traders do need to keep in mind that the US Initial Jobless Claims printed the lowest reading yesterday, indicating that things in the labour market are very close to normal.

For the time being, investors and traders are still very much concerned about the recent US NFP reading, which was significantly lower than the market expectation and it broke the back of the dollar index. But the US Initial Jobless Claims data is a more frequent labour data, and to some extent, it gives a more timely reading and there is time lag in this data.

The Asian stock market traded mostly higher on the final trading day of the week. The Nikkei index advanced 0.99%. The HSI index increased by 1.74%, while the Shanghai index gained 0.50%. The ASX index also increased by 0.47%.

Dow Jones and S&P 500: Market Breadth

The Dow Jones’ market breadth lost further momentum yesterday. 72% of the Dow Jones stocks traded above their 200-day moving average. The S&P 500 stock breadth also displayed more weakness yesterday. 70% of the shares traded above their 200-day moving average. The Dow Jones index made a top, a bearish pattern recently. Since then, the price action has traded in a downtrend on the daily time frame. There is no doubt that the price was way overbought for two reasons. Firstly, the price was trading well above the 50-day SMA on the daily time and most of the time when the price is trading more than 5% away from its 50-day SMA on the daily time frame, it usually experiences a sell off. Secondly, the RSI, a momentum indicator was also near the 70 level, which indicated that prices are way overbought.

Looking at the price action now, the Dow violated the 50-day SMA on the daily time frame two days ago and it is still trading below this moving average.

For the time being, the 100-day SMA on the daily time frame is providing all the support, and overall, the Dow Jones’s price is trading between the 50 and 100-day SMA. A new trend is more likely to emerge when the price breaks out this range. Looking at the price action, it is more likely that the price may continue to move lower, and it may retest the next support near the 200-day SMA on the daily time frame. The near term support is at 34,340, while the resistance is at 35,522.    

Stock Market Rally

The S&P 500 stock index closed lower on Thursday; the index declined by 0.43%. The real estate sector led the index lower and 9 out of 11 sectors closed lower. The Dow index also declined yesterday; the Dow stocks moved the index lower by 0.46%. 22 shares declined, while 7 shares closed higher. The NASDAQ composite, a tech-savvy index, fell by 0.25% yesterday.

Moderna Inc stock contributed the biggest gain, soaring 7.808%. Biogen stock was the largest drag; it fell by 6.55%. The S&P 500 stock index is up 18.74% so far this year.

Nike provided the biggest help for the Dow Jones; it advanced by 1.63%, while Amgen Inc was the largest decliner, it fell by 2.39%. 



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