Equity markets have always been a subject of interest for traders and investors alike. In a recent discussion, Vishal Toora from Equity Guru shed light on the current dynamics of the stock market, providing an insightful analysis that combines historical data with present-day observations.
The Significant Technical Price Level:
As of Vishal’s last recording, the stock markets were testing a pivotal technical price point. Notably, the S&P 500’s trendline breakdown and the subsequent attempts to reclaim the 4500 zone have grabbed the attention of market watchers. The significant sell-off observed in mid-August and the ensuing rebound are clear indications of the market’s current volatility.
Why the 4500 Zone Matters:
The 4500 price level holds particular importance. For one, it stands as a previous resistance zone, typically a region where sellers dominate. A strong close above this zone might suggest that the recent downward movement was not the start of a new downtrend but a mere correction in the ongoing uptrend since spring.
A Pattern to Watch – Head and Shoulders:
Interestingly, Vishal brought attention to the “head and shoulders” pattern, often a signifier of market tops and impending trend reversals. This becomes especially crucial as historically, September has shown a bearish inclination for stock markets.
The Bond Yield Story:
A noteworthy observation is the recent massive sell-off in the bond yield. Both the two-year and ten-year yields have seen a marked drop, the latter significantly retesting a broken zone.
Federal Reserve & Inflation Battles:
Recent statements from Jerome Powell suggest the Federal Reserve’s continuous struggle against inflation. Market interpretations hint at potential rate hikes, possibly not in September but later in the year. However, with the inflation data currently falling below 4% on the US side, and given the dip in job openings in July, there’s a sense of optimism. Vishal points out that the Fed’s past decisions and their implications on inflation should serve as a lesson.
Oil’s Outlier Role:
Among the various factors affecting the equity market, the price of oil stands out. The oil markets are exhibiting bullish patterns. A surge in oil prices would naturally lead to higher transportation and fuel costs, possibly pushing inflation numbers up.
Equity Market’s Current Stance:
Despite the variables at play, the equity market presents a bullish front. Both the Nasdaq and S&P 500 are poised for potential breakouts. The Dow Jones and Russell also mirror this optimism. However, Vishal underlines the importance of the oil price movement and its potential to surprise markets with unexpected inflation data points.
Conclusion:
While the current scenario seems to tilt in favor of the bulls, markets are unpredictable. As Vishal aptly asks – is this the ideal “buy the dip” moment, or will September continue its historical trend of being a tough month for equities?