After some good news from HSBC and Barclays, the market has reversed early losses to be heading to a very strong start to the day, however the first day of the month is often characterised by large early buying as institutions take the opportunity to rebalance their portfolios and to enter the equity markets. This should not be mistaken for a breakout as it can often be aggressively retraced, but it can provide great opportunities in the first few hours of trading.
The technical picture still appears bullish. Last week the S&P 500 held above the daily inverse head and shoulders neckline (currently at 963.00). All participants now will be focussed on the psychological level of 1,000.00 and beyond that daily resistance at 1,009.00. Until these levels to the upside are broken or the head and shoulders neckline is invalidated, we will be trapped in this corridor awaiting a signal for the next medium term move, be it a continuation or retracement.
Bonds have sold off and Itraxx index has tightened to below 600 for the first time since September, as traders continue to flee safer assets.
Looking forward we have rate meetings from ECB and the BoE, as well as Non farm payrolls. which will confirm our current trend or be the start of a reversal.
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