SP500 remains vulnerable to another leg lower

Although this weeks FOMC meeting, provided dovish reinforcement to the Feds new policy framework announced at the Jackson Hole Symposium, it failed to put an end to the more cautious tone evident in the U.S. stock market in September.

Charts (5)

Overshadowing the Feds renewed commitment to ultra-dovish policy, investors remain cautious due to some of the factors listed below.

  • Fading hopes that a 4th stimulus package will be agreed before the November 4th U.S. election
  • Brexit negotiations in Europe
  • A second wave of the virus in Europe
  • Uncertainty around the outcome of the U.S. election
  • The Federal Reserve is not due to meet again until after the U.S election.

There is also a concern that the significant improvement in economic data that until now has helped power U.S stocks higher, has stalled and begun to decelerate.

Looking at the chart of the 4 week average of US jobless claims below, it can be observed that after a sharp spike higher in April following the lockdowns, the pace of improvement has noticeably decelerated in August and September.  

S&P500 remains vulnerable to another leg lower

Seasonally, September is a month that usually provides its fair share of speed bumps, particularly after the expiry of U.S. equity indices which occurs tonight.

Research by US investment bank, Morgan Stanley shows that since 1998, E-mini S&P 500 futures have underperformed over the 5 days following the quarterly expiry. After the September expiry, the effect is more pronounced and exhibits a median 5-day return of -1.22%.

All in all, September will likely be the S&P500’s first negative month since it began its 65% rally in late March. The current downdraught is viewed as being part of a corrective pullback, rather than a reversal lower.

A break of short term support 3290/80 will allow the correction to deepen initially towards 3230/00 and then towards the wave equality target at 3128 and the 200-day ma 3100 area.

From the 3128/3100 support area, we will look for signs of stabilisation and for the uptrend to resume.

S&P500 remains vulnerable to another leg lower

Source Tradingview. The figures stated areas of the 18th of September 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation


This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.