Summary:
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US indices greenahead of Wall Street open
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GS bear market risk near 50-year high
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US100 prints large bearish engulfing candlestick on W1
It’s been a positive start to the week for US indices so far with all 3 large cap benchmarks sitting on decent gains ahead of the opening bell on Wall Street. The US100 is the biggest gainer and higher by more than 0.5% at the time of writing. Friday’s US jobs report and last week’s ISM releases further entrench the view that the world’s largest economy is close to firing on all cylinders, but it could be telling that despite these positives the US500, US100 and US all ended last week lower.
Furthermore a bear-market risk indicator used by Goldman Sachs has reached its highest level in almost half a century. The bank said the indicator is intended to provide a “reasonable signal for future bear-market risk” and is based on measures of equity valuation, growth momentum, unemployment, inflation and the yield curve and the gauge has ticked-up to levels not seen since 1969. The bank’s strategists including Peter Oppenheimer were quick to point out that this didn’t mean they were predicting an imminent crash, rather a prolonged period of low returns from stocks, but it does serve as a potential warning sign nonetheless.
A bull/bear indicator created by Goldman Sachs has hit its highest level in almost half a century and could be seen as a warning sign for stock market bulls. Source: Bloomberg
Looking at the US100 more closely we can observe a bearish engulfing candle was draw on W1 last time out and this may be seen as a possible reversal signal. Price began last week positively and close to record highs around 7710 but the action deteriorated as the days wore on and ended firmly lower. The market has enjoyed a strong run higher in the past couple of years with the index almost doubling. Weekly bearish engulfing candles can be viewed as major reversal signals. The two previous instances where this pattern was printed in May 2017 and January of this year saw further declines following them. The recent highs of 7710 now become potentially key resistance and as long as this is not broken above then a pullback may well occur. Given the scale of the rally in recent years even a 23.6% pullback would target a move lower from the peak of 900 points while the 38.2% fib resides around the 2018 lows of 6249.
The US100 printed a large bearish engulfing candle on W1 last time out and this could be seen as a possible key reversal signal. 7710 now becomes potentially crucial resistance while fib retracements of the rally from the start of 2016 can provide possible profit targets. Source: xStation
