S&P 500 rally stalls

Tony Sycmore
By :  ,  Market Analyst

In this article “Why CADJPY is worth a look” we spoke about the shift that occurred midway through last week as a series of unrelated events combined to remove tail risks and prompt a relief rally in risky assets.

One market to rally strongly was the S&P 500 which closed above 2976, resulting in a more neutral stance. Already though, I am finding both the fundamental and the technical picture challenging my neutrality.

Firstly, to the fundamentals. The U.S. manufacturing sector is continuing to slow as witnessed by last week’s ISM manufacturing PMI which fell into contractionary territory for the first time since January 2016. Offsetting manufacturing weakness, the U.S. consumer has remained solid, underpinned by a strong labour market.

However, challenges to the strong consumer story are becoming more frequent. Last week the sharp drop in the August University of Michigan consumer sentiment survey was highlighted. Then followed, Friday’s U.S. jobs report where the details were less impressive than the very low 3.7% unemployment rate.

As Morgan Stanley & Co Chief Economist Chetan Ahya noted, payroll growth has fallen to an average of 141,000 jobs this year from 234,000 in 2018. Private payrolls increased by only 96,000 in August, a 3-month low and Julys numbers were revised lower. In short, enough reasons to think that conditions in the labour market may have peaked and the possible impact on the consumer.

Turning to the charts, the daily Doji candle that formed overnight in the S&P 500, warns of loss of upside momentum and creates the set up for a short S&P 500 trade. Should the S&P 500 now trade 5 points below the lows of the overnight Doji candle (without breaking above 2995 first) it would be a bearish development and a reason to consider initiating a S&P 500 short trade.

If the S&P 500 were then to break and close below the August highs 2940/30 area, it would provide another layer of bearish confirmation and warn that Wave iii or c low has commenced targeting a retest and break of the August 2775 low. Buy stops should be placed above 3000 and the stop trailed lower should the market move lower as anticipated.

S&P 500 rally stalls

Source Tradingview. The figures stated are as of the 5th of September 2019. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation


TECH-FX TRADING PTY LTD (ACN 617 797 645) is an Authorised Representative (001255203) of JB Alpha Ltd (ABN 76 131 376 415) which holds an Australian Financial Services Licence (AFSL no. 327075)

Trading foreign exchange, futures and CFDs on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange, futures or CFDs you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss in excess of your deposited funds and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange, futures and CFD trading, and seek advice from an independent financial advisor if you have any doubts. It is important to note that past performance is not a reliable indicator of future performance.

Any advice provided is general advice only. It is important to note that:

  • The advice has been prepared without taking into account the client’s objectives, financial situation or needs.
  • The client should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before following the advice.
  • If the advice relates to the acquisition or possible acquisition of a particular financial product, the client should obtain a copy of, and consider, the PDS for that product before making any decision.
Related tags:

Open an account today

Experience award-winning platforms with fast and secure execution.

Web Trader platform

Our sophisticated web-based platform is packed with features.

Economic Calendar