Intraday Market Thoughts

Now & October 2014

by Ashraf Laidi
Jul 28, 2015 13:05

Will the S&P500 & Shanghai Composite both do what's expected of them? Bounce off their 200-DMA? The Shanghai Composite index stabilized overnight at its 200-day MA for the 3rd time in over 20 days and S&P500 closed right above its 200-DMA on Monday. The usually inversely related EURUSD broke its June trendline resistance, regaining its 100-DMA but failed to climb above its 55-DMA. Buy-the-dip complacency in equities may suggest the S&P500 will bounce off the key 200-DMA as it has done on July 7, 8, 9 and 10. 

Moving into the weekly horizon, however, the divergence between the Dow Jones Industrials Average and the S&P500 becomes interesting, with the former breaking below its 55-WMA for the 1st time since the infamous week of mid October 2014, when the Fed officially ended QE3. And so in order for S&P500 to reach its 55-WMA, it would have to lose another 20-pts or 0.98% from Monday's close.

Few Differences between now & October

We have seen all of this before during the escalating volatility of October 2014, all of which emerged from a rising US dollar as the Fed announced the end of QE3. Bond yields sustained a violent plunge alongside falling equities, which dropped nearly 9% from their prior peak.   

Yet, the vital dinstinctions between today and October are: i) the stock market carnage in China; i) the protracted collapse in commodities; iii) the return of deflationary concerns; as well as iv) their implication for capex.

All we worried about back October was a slowing Eurozone and a winter-bound US economy. The Bank of Japan helped save the day by stepping up QE and the ECB did the same by signalling QE later in November.  

With FOMC forecasts currently signalling TWO rate hikes in 2015, will this save the day? 


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