USA100 holds under extensive pressure


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By: Andria Pichidi

Global stock markets are mostly higher, resuming yesterday’s stellar day on Wall Street as the indexes raced sharply higher on surprisingly positive vaccine news from Pfizer and BioNTech. News from Pfizer that its COVID vaccine is very effective prompted risk-on conditions globally, lifting stocks, yields, and crude oil prices.

In the Asian market equities petered out amid the realization that there are still considerable challenges ahead in the fight against Covid-19 however there is at least a light at the end of the tunnel now, that will also reduce the pressure on central banks to add even more stimulus. Currently however other than the European stock markets settled in a comparatively narrow range.

The GER30 is up, after corrected some of yesterday’s sharp gains, but is holding above early lows. Other European indices are higher, with the UK100 gaining a further 0.8%, the CAC 40 up 0.5%, and the Spanish IBEX 1.8%. The wider Euro Stoxx 600 has risen 7% over the past 5 days, but still down 6% over the year, highlighting that there is still room for further improvement if and when it is confirmed that the virus situation is under control and Europe doesn’t face a further cycle of lockdowns and restrictions.

On the US side, however, the USA100 holds in red after it closed yesterday -1.5% lower. The hopes for a more normal life saw investors pile into travel and leisure sectors, and flee the stay home sectors. Hence, the USA100’s gains lagged through for a second consecutive day and the index falls into negative territory. The USA100 was hit by the rotation out of defensive technology stocks into shares that will benefit most from the end to lockdowns.

The asset is in a dramatic shift this week towards negative sentiment. Selling pressure has ramped up and there has been a significant breakdown on the 20-day SMA and a reversal of more than 50% of last week’s gains. The latest higher high at 12,422 has been rejected suggesting that a 3-month descending triangle is still in place and consolidation is underway. Momentum indicators are now flat to negative in the daily chart, while intraday they are decisively negative intraday, with 4-hour RSI consistently failing under 40 and MACD reading to turn negative. This suggests an outlook of selling into near term strength.

Hence now November higher low and 100FE at 10,929 and 11,155 are now the areas to be seen of overhead supply and a near-term sell-zone for any bounces this week. Breaking down below the 10,929 and more precisely 10,700 (September low & 3-month support)  could confirm a medium-term bearish outlook with immediate support levels on March September’s up-leg. There is initial resistance at 12,000 – 12,422.

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