Indices hold their ground

After plenty of volatility, indices have begun to stabilise, and breadth readings suggest dip buyers may be showing up.

Indices
Source: Bloomberg

An early bounce has helped to restore some measure of positivity among indices, although the weak finish to last week casts a long shadow.

Breadth continues to recover, albeit slowly, providing some hope that the dip buyers are back in action.

The put/call ratio has dropped back slightly, which can indicate that a move higher in price is on the way. A drop in investor bearishness is often a good sign, so this indicator bears watching in coming days.

S&P 500 put/call ratio chart

Even if markets do rebound, it is important to distinguish between various indices. This is not the 'easy money' era of 2017, when all equities seemed to go up, regardless of location, fundamentals or economic outlook.

Instead, we have seen wide divergences develop, and indeed continue, as European and Asian markets fall back.

If the market begins to rebound, and if this rebound continues into year end, as seasonality would suggest, then the indices to look for long positions would be those with the strongest record so far this year, and US indices and the Nikkei seem to be the ones to watch here.

S&P 500 and Nasdaq

Breadth has recovered for the S&P 500 and Nasdaq, even if the price has yet to mount a meaningful rally.

Risk-reward is still probably skewed to the upside here, although heightened volatility means the journey may not be a smooth one.

S&P 500 chart

Nasdaq chart

FTSE 100 and DAX

Risk-reward is also skewed to the upside for the FTSE 100 and DAX, but it is important to note that while US markets saw record highs only relatively recently, both these indices have been moving lower during the summer.

Thus upside may be limited, and any rebound in price and breadth could well bring out the sellers once again in due course.

FTSE 100 chart

DAX chart

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.