One of the conundrums (amongst many) that is perhaps puzzling to new traders and investors is why stock markets appear so positive in the face of poor fundamental and economic news.
One reason is that stock markets are considered forward looking and a projection of what is likely to happen in the next 12 to 18 months. Looking back, of course, in the past two years we have avoided a collapse in the euro, a slowdown in China and a near death experience with the fiscal cliff.
Indeed the effect we are seeing right now in equities is also often seen when fundamental data is released and again can be puzzling. In other words why do markets go up on apparently bad news and down on good news? And the answer is “well it’s all relative”. If the bad news is not quite as bad as expected then the markets will view this as positive and go up accordingly. In many ways the markets have uniformly breathed a sign of relief that financial armageddon has been avoided (once again).
All this is played out in our benchmark indices, of which the DOW JONES is the most prominent. Whether this reputation is deserved, given its narrow focus on 30 stocks, is open to debate and the subject for another post.
So, moving to the YM (the e-mini futures contract for the DOW) the technical picture remains extremely bullish with yesterday’s June contract closing higher once again at 14256, up a further 41 points on the day. Overnight the electronic contract has continued this bullish tone, assisted by a surge in the Nikkei, as the Yen weakens further, with the YM now testing the 14300 level.
Furthermore, the strong platform of price support created throughout February is now a defining feature on the daily YM chart and should we see any reversal this will provide a cushion to any fall.
Moving to the indicators, everything is bullish with both trends remaining firmly green, a heat map that is bright green and all accompanied by strong and sustained buying in both time frames.
From a fundamental perspective today is non farm payroll and it will be interesting to see whether today’s figures will help to cement this bullish picture or provide the excuse to dent it.
By Anna Coulling
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