The US equity markets jumped sharply today on the back of positive economic data as US home sales m/m came in strongly at 5.48M (5.40M exp). This is a fairly positive twist as US home sales have been falling over the past few months, as winter is generally seen as a less popular period to buy homes. However, it seems consumers are more open to the option of buying property and thus are bullish about the US economy. Economists always love to use home sales as barometric pressure for the economy, as people are unlikely to buy homes if they feel their jobs are insecure or there could be future economic problems. But for now the US is looking stronger than expected, and with the a December rate rise around the corner, coupled with a potential strong Christmas season the markets are very bullish and have shown exactly that with today’s jump in equities.
The S&P 500 was the cream of the crop today as it edged up to the magic 2600 mark, hitting a high of 2602 before retreating slightly to breathe. A few months ago I talked about this being a real possibility and markets are further pushing it higher. Is there potential for 2700? The answer is probably yes if the US economy continues to expand, but there is always the ever present risk of the market overheating and causing issues. Monetary policy though from the FED is likely to be quite strong and sharp if there are issues, so as not to repeat past crises. However, with rates at record lows it can be very hard to move if there is a crisis.
For traders who are bullish on the S&P 500 it seems likely that further wishes could come true and it could potentially climb. The main risk is probably the tax bill stalling in the senate, but so far markets believe it will likely pass. The 20 day moving average at present seems like more plausible support if the S&P swings lower, however lower levels can be found also at 2580 and 2565. Resistance for me higher than this can’t be determined other than 2650 and 2700 which are likely to act as psychological levels in the current market. This new high is likely to be treaded carefully by markets, but if we continue to see strong results I anticipate further extensions.
Gold is probably the ugly child in a bullish stock market, but it has slipped sideways recently as traders believe things may be slightly overheated. For me it may be the case, but as equity markets climb higher we could see gold spring back into action again. So far resistance at 1295 has held out over the last few months, but any creep upwards and break out here could be triggered if markets become jittery. At the same time bears coming into the market could really look to test support at 1267, with the potential to aim for lower lows at 1247 in the current market climate. For me gold will have its day again, but it’s a case of when the market the starts to overheat.