Economic Analysis

The S&P 500 is trading strongly above the 50% Fibonacci retracement level, preparing for more gains. The attempt to climb the main sectors, as well as the bullish gap today, enhances the chances of the rise during the coming period.

S&P 500 in the short term

The index is moving further and further up from the 50% Fibonacci retracement level, and given today's strong trades above this level, we effectively guarantee that we will see it confirmed at the third consecutive close above it. The market looks to be bullish and bullish as we see the index also holding above the 50-day moving average. You may also be interested in: Technical Analysis

Volumes are also strong and this is not an obstacle to the bullish scenario. Some technical indicators are also appearing to be increasingly supportive of the rally.

Our view of the S&P 500 Index

It is not only technology earnings this week that will drive the markets - Wednesday's Federal Reserve announcement will also be an important factor in moving the market. Their previous interventions succeeded in stabilizing the market .. With all quantitative tightening reversed, the Federal Reserve balance sheet moved from the peak of QE3 to below $ 4.6 to more than $ 6.5 currently. Repo operations were just an aperitif, as its balance sheet rose just over $ 2 trillion in the past month and a half.

Do the markets expect a new step out of this meeting? Yesterday, the Bank of Japan took further action, sparking the world's appetite. But will the Fed offer a distinctive solution? Perhaps not, because we rather look at the wait-and-see attitude in general for this meeting.

If the results of the Fed meeting are largely in line with these signs, then stocks may decline. But the forecasts tell us that the expectations are for the Federal Reserve to push the markets up

Let us comment on some important questions below:

Q: Do we believe that stocks could drop along with some very slight corrections as this Federal Repo continues and Trump is re-election opportunities in a forgotten state that needs market stability?

A: Despite the many bailout programs that have been introduced since the collapse of Lehman, they have not prevented stocks from falling to the lowest level in March 2009. This shows that market forces can overcome quite a few Fed interventions. The market also prefers to expect the next Fed move and could force it to do so. Do you remember the bout of stock declines in December 2018 due to the Fed's speech?

Markets can bet on the Federal Reserve from time to time. Do they seem to be betting against the central bank now? Not right. But this can change. Imagine if it was generally accepted that conditions would not improve due to the Corona virus in the coming weeks?

This means more economic downturn, hit profits, a small business blow, and the unemployment situation will get worse, of course.

So yes, stocks can actually skip too slight corrections.

As for Trump, he will surely love seeing a well-functioning stock market and economic confidence reflected there.

In sum, the S&P 500 is trading strongly above the 50% Fibonacci retracement level, and is preparing for more gains. The main sectors and their ratios (financial to utilities, especially the discretionary authority over basic commodities) prefer to try the bullish rise, as well as the bullish gap today. Credit markets stopped declining, and financial data rebounded sharply, indicating a rally in stocks. The ease with which bad news (economic or corona-related) is ignored gives the bulls a benefit (perhaps more than) a short-term doubt. Our positive upward stance remains justified until this moment.