US Stock Markets Refreshed Their Highs Last Week and This Week… Again

We have been calling for caution in taking long positions, questioning the real substance and feasibility in the short term behind President Trump statements about tax cuts and the financial market regulation. We also started to look at commodities to try to depict how the situation might unfold.

Lets move forward on that path.

First, the S&P 500. H4:

The index lost the short term support, but kept on testing it on the upside, and new highs were marked. Nonetheless, it seems to be loosing that incredible trust that drove it up since the 9th of February, as signalled also by the divergence on the RSI.

If we switch to the daily chart:

Two doji and a third one forming as we speak, signalling a great deal of uncertainty.

Once again, the trend is bullish, no doubt about that. What I am trying to outline is the sustainability of such a huge trend, especially in the short term, so to adequately evaluate the risk/reward ratio of long trades at this point in time.

Lets now look at Europe. Here is the DAX 30M chart:

Here the slow down is more evident. Not only the index lost its very steep short term support, but it also broke the second dynamic support, tested it and is now testing the short term static resistance, heading back towards the short term dynamic support.

Lets move on to commodities. Last week we called the possibility of a further rise if the stock markets would lose strength, indicating 1245 as a level to watch closely.

This is XAUUSD daily chart and: there it is, successfully braking through 1250 and now challenging level 1265.

That tall green braking through the static resistance on the daily chart is indeed a strength signal, which is in line with what is going on with the DAX, not (yet?) with the S&P 500.

We have also being looking at the OIL prices, affirming that, after the cut decided by OPEC, the attention must be shifted from the supply side to the demand side, so that a possible increase in price would heavily depend on the real expectorations of a further recover of the global economy, with a particular focus on the US.

WTI is trapped in a side market since the beginning of December, ignoring the fireworks on the US stock markets. We  even have a short term double top formed last week.

The technical situation of the stock indexes and the intermarket analysis seem to be indicating a pause in this endless rally on the stock markets. We should also consider that PE ratios are quite stressed and that the VIX is below 12, an extremely low level signalling an enormous, maybe excessive confidence by the investors.

Let me repeat this again: the trend is bullish, and trading against the trend is dangerous, but..

At least we should carefully consider taking long positions at this stage, at least in the short term, calculating your exposure and setting the stops appropriately.

Roberto d’Ambrosio

CEO Alpari Research & Analysis