Stock Markets Analysis & Opinion

S&P 500, NASDAQ and DAX Aiming Even Higher Levels of Froth: How to Trade Them

  • Markets exhibit surprising optimism in response to the latest US inflation data.
  • Major US and European indices surge to record highs, reflecting robust investor confidence.
  • Likelihood of ECB rate cuts grows, with potential implementation as early as June.
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  • There's no remnant of April's widespread corrective movement on the major US and European indices in sight anymore.

    Optimism from the demand side stemmed from Wednesday's US inflation data, aligning with market expectations yet breaking a streak of five consecutive readings above forecasts. It's noteworthy how the market decisively moved without any surprises, reflecting bullish determination to sustain the upward trajectory.

    Concurrently, the prospect of the ECB outpacing its overseas counterpart in initiating a series of interest rate cuts is gaining traction.

    A series of dovish remarks from European Central Bank officials, particularly Francois Villeroy de Galhau and Mario Centeno, hints at groundwork for a potential 25 basis points cut as early as June.

    Let's take a look at three of the most important global indexes to assess their key trading levels at the moment.

    S&P 500 Eyeing New All-Time Highs with a Target of at Least 5400 Points

    This week, the S&P 500 breached new historical highs, albeit marginally. Nevertheless, bullish sentiment suggests an appetite for considerably higher levels, implying a potential continuation of the upward trend with a target near the next significant level of 5400 points.

    A potential early correction presents a favorable opportunity to enter the trend at a more favorable price point. It's prudent to observe the convergence of the trend line and the local support level, which aligns near 5270 points. A breach of this area could signal a deeper retracement, possibly targeting at least 5150 points.

    Euphoria Also Evident on the NASDAQ

    Similar market behavior is observed on the primary US index of technology firms, NASDAQ Composite, with recent peaks undergoing minimal corrections. Given the robust demand movements, the market may attempt only a flat correction from here, prompting vigilance regarding nearby local support levels.

    In the current scenario, initial resistance levels for sellers are around 18500 and 18350 points. With limited references for potential areas of resistance, the natural target for bulls would be the next significant barrier of 19000 points.

    DAX — High Risk of at Least a Local Correction

    Keeping pace with its U.S. counterparts is the German DAX, which surged to new highs even before the release of inflation data.

    However, with declines observed in the latter part of the week, the risk of a deeper correction is mounting. Nevertheless, at this stage, it doesn't signify a sharp reversal in the prevailing trend.

    The support level at 18600 points is critical in this context, as its breach could mark the initiation of a potential extension of the corrective movement.

    The area around 18200 points appears robust; should there be a test and a robust buyer response, it may present an opportunity to explore long positions.

    ***

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