The last couple of days have been very positive for US equities – indices have advanced for six straight days and the SP500 index is now nearly 7 percent higher than last week’s lows. This is, indeed, a very strong move to the upside.
Stocks surged on Wednesday after the Federal Reserve chair Jerome Powell changed his stance regarding the neutral rate, stating that current rates are ‘just below’ the range of estimates for a ‘neutral rate.’ This is a sharply different tone than seen previously when he suggested that a ‘neutral rate was still a long way off.’ His words imply that the Fed might pause with the rate hikes in 2019 or stop them entirely as the rates above neutral could be viewed as restrictive for the economy, which seems to be slowing.
Moreover, stocks soared across the globe on Monday as Trump and Xi managed to calm the markets at their weekend meeting with a 90 days truce in their trade conflict. The White House said on Saturday that Trump had agreed to leave tariffs on US products at a 10 percent rate after January 1, as China agreed to buy a substantial number of products from the US. However, if the new trade deal is not completed within the next 90 days, the tariffs may be upped to 25 percent as previously ’promised’. Traders took this news very positively and equities rocketed higher, with US yields also pushing up.
These two fundamental pieces of news sent a strong bullish signal to investors, with the famous Christmas rally probably starting, as December is usually a very positive month for US stocks.
Technically speaking, the index is now testing a major resistance near 2,815 USD, where two tops are previously located, along with the 100-day moving average. The RSI indicator is suggesting a much-overbought market in the four-hour time frame and therefore, the presence of the mentioned resistance, combined with the overbought stocks, could lead to some correction. The key support is at 2,760 USD, where the 200-day moving average is located and while the index trades above, the Christmas rally theme could still go on.
So, to conclude, we could see some correction toward the 200DMA to clear the overbought conditions, but it seems like the bullish trend is back on track and if the price jumps beyond 2,815 USD, the Christmas rally could continue, targeting the 2,900 USD level.
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