On Friday, the major US indices staged a stunning intraday reversal and have continued to rise ever since. The key factor was the change in tone of the Fed’s comments. Since last week, member after member of the Federal Open Market Committee (FOMC) has indicated that further tightening of monetary policy may not be necessary.
This is a significant shift by policymakers in response to the rapid rise in long-term bond yields. Interestingly, this is an innovation on the Fed’s part, as similar changes in policymakers’ tone since 2007 have been triggered by turmoil in equity markets, not debt markets. Market consensus now predicts a 27% chance of upside this year, up from 47% at the beginning of last week.
The technical outlook also shows a good reversal. The S&P 500 Index has repeatedly found support on declines to the 200-day moving average in the first trading days of October. On Friday there was another downward selling attempt, but it failed. Within six hours, the index had risen 2.8%. It is a strong bet on reversal.
On Monday and Tuesday, the market extended its growth, confirming the end of the two-month correction after hitting a key support level. We also note that the S&P 500 closed Tuesday above 61.8% of its bearish range from early August through October 4.
Seasonality is also on the side of the bulls, as October is usually the start of a strong end to the year.
The Nasdaq-100 Index is as happy as the S&P 500 with the recent bullish momentum, having already recovered above the 50-day moving average.
To be more confident that the correction is finally over, it would be wise to wait for another trio of signals.
The index S&P 500 has reached the 4370 level, a key support zone in August, which has a good chance of turning into resistance.
He Nasdaq 100 It is in a descending corridor, having broken its lower limit in early October. However, only a move above 15400 will signal a trend break.
He Dow Jones 30 found support below 33000 on the downside, same as in May. However, it is now breaking down the 200-day moving average at 33850. Only a consolidation above 34000 will signal the return to the long-term uptrend and the end of the correction.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
