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The day has seen a commendable holding action by the bulls, with the relatively bullish tone to price action being particularly notable given that there was almost no data of note out during the session, while crude oil has fallen sharply.
Were the week not clouded with the European Central Bank (ECB) announcements coming thick and fast, it might have been safe to declare that the bulls would have an easy time of it. However, nobody wants to get too carried away ahead of Wednesday’s Federal Reserve meeting, even if it is unlikely to be as exciting as last Thursday’s ECB get-together.
As is so often the case lately, weakness in crude oil has made it difficult for indices to get much traction to the upside. As noted recently by Mohamed El-Erian, late of Pimco, it is hard to expect sanity in stock markets when oil is behaving like a penny share, with swings of 3% on a daily basis.
Iran has poured water on the idea that a global production freeze is on its way, leading to some notable weakness in the crude complex. However, speculative positioning in crude oil is net long, and becoming more bullish as the month grinds on.
Net longs are up by 7.4% over the week, but the level is still well down on the positioning seen in mid-2015. As a result, weakness in crude could see buyers re-emerge, with the current WTI uptrend still intact.
In London, the FTSE 100 continues to find it difficult to push on beyond 6200, the top-end of the range that has prevailed since the beginning of the month. Weakness today has been concentrated in oil and gas names, with strong performances in miners such as Glencore, which has been the key reason why the index has held on to its gains.
Financials are broadly flat as some of the post-ECB euphoria wears off, while technology names are also putting in a good day.
In the US, the Nasdaq is leading the way higher, as technology stocks enjoy some affection for a change. The index itself broke higher on Friday, and if bullish sentiment continues here it augurs well for risk appetite generally; investors fearful of declines don’t tend to get too carried away in adventurous tech names.
One note of caution still sounds however – with the advance-decline line for the S&P 500 now at its highest level since December, there seems little upside room for equities. The risks are now perhaps skewed more to the downside, at least in the short term.