Stocks recovery could be short-lived

After yesterday’s bloodbath on Wall Street, index futures point to a rebound once trading gets underway shortly.

After yesterday’s bloodbath on Wall Street, index futures point to a rebound once trading gets underway shortly. European markets also staged a sharp recovery as sentiment improved. But it remains to be seen whether stocks will be able to push higher from here over the next few days, or the selling resumes. While the markets could recover a bit further, I remain sceptical that we will see new all-time highs any time soon. I think too much technical damage may have already incurred to suggest the bulls are still in control after a multi-month rally sent US indices to virgin territories and markets elsewhere to elevated levels, before the plunge that started last week. It is possible that a lot of people who bought near those record levels may use any rebounds as opportunities to close out their losing trades at breakeven or a small loss. Long-side liquidation will likely apply pressure on the indices.

In truth, a lot depends on the US-China trade dispute, which remains the main focal point after the US government formally named China a “currency manipulator” after the close of Wall Street on Monday. This came after Beijing allowed the renminbi to fall below 7 against the dollar for the first time in more than a decade, apparently in retaliation to the imposition of fresh tariffs on Chinese goods arriving in the US that were announced last week. However, after an initial dip on the news, stock index futures managed to rebound and were up noticeably at the time of writing. The People’s Bank of China set the daily currency fixing stronger than expected overnight, presumably to distance itself from the accusation it manipulates the yuan. Also supporting the markets is probably bargain hunting of companies with good fundamentals and short-covering elsewhere.

But unless something fundamentally changes regarding US-China trade dispute, I think that the path of least resistance remains to the downside for the global indices, despite today’s bounce. As such we expect key resistances to be defended and the selling to potentially resume later on in the week or possibly later on today. As the chart of the S&P 500 futures show, below, the index has now broken out of its bullish channel after taking out key support levels at 2946.00 and 2914.50. These levels are now going to be resistance, or potential resistance, to watch. On the downside, Monday’s low at 2820.50 is an important level to watch as the index has been able to climb back above it. So, it could turn into support. Below that, the 200-day average comes in at 2791.95, followed by the 38.2% Fib level at 2757.23.

Source: eSignal and City Index. 


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.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX 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), StoneX Financial 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 StoneX Financial 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 StoneX Financial 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.

StoneX Financial 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 for the complete Risk Disclosure Statement.