Last night the major US equities held on to their gains and closed at their highs for the day, week, year, and for some at all-time highs. The S&P500 closed with a very strong bullish candle at 4023 and looking at the daily chart the 50 ema above the 200 ema is showing no sign of momentum decelerating. Any pullback to the 50 ema (in red) will signal to add into a bullish trade or a break would signal the first signs of weakness.
The major catalyst seems to have been good manufacturing data from the Institute for Supply Management (ISM) who survey more than 300 manufacturing firms to gauge the level of manufacturing activity. A reading above 50 is expansionary so a big jump to 64.7 in March from 60.8 the previous month, beat expectations by a long way. Factory activity was also higher in the HIS Markit Manufacturing PMI which has now risen to 59.1 in March showing that factory growth nearly at its highest activity on record. An increase in factory orders is a very bullish sign of economic growth but on the downside, the increasing inflationary pressures are adding to costs that firms will need to pass on to consumers soon or risk feeling the negative deflationary effects to their bottom line.
Yesterday we had the weekly initial jobless claims which unfortunately rose above the 700k level again but to put a positive spin on it, the 4-week average was moving down and that is a good thing. Going into today’s jobs number the biggest guesstimate from those surveyed is for 1.1m jobs to be created, as the US economy is opening up the retail and services sector more, with the consensus that we should see an increase on last month to around 640k. Because of the bank holiday weekend, the markets are either closed or running on reduced hours, so a big disappointing number or, fingers crossed a big expansion in the NFP number, will be greeted by very thin markets and we could see some volatility across any market that is trading. The best thing for retail traders would be to sit out and join in on a trend next week when the markets are back to full capacity after the holiday period.
The US dollar gave back some of its recent gains in Thursday’s trading, this could have been profit taking or a bit of rebalancing for the start of the month. US Treasury yields had also come off, so that dragged on the US dollar but helped boost the big tech firms in the Nasdaq. With the DXY trading above its 200-period exponential moving average, I am expecting more upside but as we have talked about before there is a period of consolidation from August 2020 - November 2020 that could dampen the DXY’s exponential rise.
The British pound could be about to break higher from its consolidation channel, having ended yesterday at its highs, in overnight trading we took out the recent swing high from 29th March, which may have been a sweep of the stops or it may have been the signal that these new higher swing lows and swing highs are the starts of an uptrend. When markets come back to full capacity next Tuesday following on from the bank holidays, we’ll have a better idea of what could be next for Cable. Currently, retail traders are more bearish of the pound with the ActivTrader sentiment indicator showing 56% of traders are short.
Crude oil ended the day positive, using the weaker US dollar plus some agreement between the major oil producers during their OPEC+ meeting. OPEC+ has agreed to increase the output gradually over the next few months, with Russia Deputy PM Novak suggesting that global oil supplies should return to normal in the next 2-3 months. Whether or not the increase in demand will return for the summer is yet to be seen as France and other parts of Europe go into further covid-19 lockdowns for another 3 weeks or more. Looking at the Oil chart, the Ichimoku cloud is acting as great support for now, and we have been in this trading range for 12 days. The expansion away from this range will be greater the longer we see prices compressing, so a break to the downside could see Oil quickly trading through the cloud. The ActivTrades sentiment indicator shows retail traders are 76% bullish.