S&P 500 on the Verge of a Breakout

Daily Analysis - 11/10/2016

Ongoing Consolidation in Equity Benchmarks Could Signal Upcoming Fireworks

With market participants cautiously awaiting this week’s release of the FOMC Meeting Minutes from September’s decision, US equity benchmarks continue to consolidate within an increasingly narrow range as traders wait for hints about the direction of policy before making their next move.

The Lull Before the Rally?

The S&P 500 could be on the verge of a big breakout, technical charts indicate. The index has been stuck within a “symmetrical triangle,” formed by a pattern of rising pivot lows and falling pivot highs. As the upper and lower boundary lines narrow, it is just a matter of time before a big breakout occurs. The S&P 500 gained as much as 0.70% during intraday trading on Monday to come within striking distance of the declining trend line, before retreating to close up 0.50%. Since “triangles” act as both continuation and reversal patterns, traders need to keep an eye on the direction of breakout. A strong daily close above the 50-day moving average near 2160 could set the stage for record highs with some resistance expected at the August high of 2195.

Crude Settles at Highest Since July 2015

U.S. crude oil futures posted their highest close in over a year, buoyed by bullish comments from Russian President Vladimir Putin and the Saudi oil minister ahead of a key meeting of major oil exporters. Putin said Monday that Russia was prepared to work towards cutting output from the already lofty levels, adding to market hopes that the Organization of the Petroleum Exporting Countries might finally be able to arrive at a consensus to halt the protracted slump in oil prices. Sentiment was further boosted by comments from Saudi Arabia’s energy minister Khalid al-Falih, who said a 20.00% rally to $60.00 a barrel was “not unthinkable.” However, analysts warn that despite the recent strength in price, investors need to be cautious until OPEC meets in Vienna to iron out an extensive production freeze agreement.

Gold Down on Dollar Strength

Gold prices fell in early Tuesday Asian trade after two days of gains, as the US dollar strengthened amid growing speculation the Federal Reserve will move to raise interest rates in December. Investors are pricing in a 64.00% probability of the Central Bank increasing rates at its December monetary policy meeting, up from 60.00% last week, data from the CME Group's FedWatch tool showed. The dollar index, which tracks the greenback’s performance against a basket of major currencies, is 0.32% higher on the session at 97.220 after retreating from highest levels reached since late July. Gold remains highly-sensitive to changes in US interest rates, with an increase lifting the opportunity cost of holding the non-yielding metal, leading to a reduction in its investment appeal. Gold prices are expected to remain subdued until Wednesday's release of the latest FOMC meeting minutes.

Japan Reports Stronger Current Account Surplus

In a positive development for the beleaguered economy, Japan recorded its biggest August current account surplus since 2007 as lower import prices improved the trade balance and boosted the overall figure according to data released by the country’s finance ministry early on Tuesday. Japan’s current account is calculated by measuring the difference between income from overseas sources and payments of foreign obligations, excluding net capital investment. It provides the broadest view of Japan's import-export situation, standing at JPY 2.001 trillion in August. Besides rising by a whopping 23.00% from the same period last year, this was 26th straight month in the black. Economists polled by The Wall Street Journal had forecast a figure around 1.558 trillion yen. The benchmark Nikkei surged 1.00% to trade above the psychologically important 17,000-mark following the release of the report while the Yen strengthened moderately versus peers.