A wild rally in the
U.S. stock market continues. The S&P 500 broad market index has dropped to
3631 points but then climbed to 3758 points, bouncing from the day lows. The
rise of the index by 3.2% within one day is a very extraordinary situation and there
should be a strong reason behind it. But the only driver for such growth was
the Wall Street Journal article about a possible slowdown of the Federal
Reserve (Fed) interest rate hike cycle – without citing any source from the
actual Fed itself
The Democrats need the
stock market to be in a positive sentiment to support Democratic nominees during
the elections and not to slide in free fall, is needed. This is unlikely to is
unlikely to happen if the S&P 500 index dives below 3500 points. The market
would slump then, and Democrats would lose control over U.S. Congress and
Senate.
The European Central
Bank (ECB) has to raise interest rates by 75 basis points. The Q3 GDP in the
United States is likely to post positive figures. Big Tech companies are
unlikely to add positive tunes to the market but are unlikely to disappoint
investors too given low expectations of Wall Street analysts. Such a combination
of drivers should be enough
to hold the S&P 500 index within the aggressive upside formation by the end
of the week. It is very hard to expect the index to hit targets at 3850-3950
points by the end of the week. It sounds more unrealistic but the index hit
3802 points on Monday, so we should not exclude this scenario. The downside target for the S&P 500 index
is intact at 2000-2200 points.
Brent crude prices are
seen to be testing the support at $88-90 per barrel. This level is a threshold
for crude prices not to crash down to deep levels. The aggressive downside
formation with targets at $75-85 remains intact. Mid-term expectations for
prices are seen to seep down to $50-65 per barrel by November.
Gold prices have
slowed down a little on the news that the Fed may hike interest rates less aggressively
than expected. Gold prices need to continue declining to $1620 per troy ounce
to continue within the downside scenario with the targets at $1500-1550 per
ounce. It is very risky
right now to add new short positions amid strong geopolitical uncertainties
that may push gold prices up.
The money
market is experiencing elevated volatility and it is very risky to open short-term
positions right now. Considering longer movements there are many mixed signals
for the rest of this month. On one hand we may expect the rise of the GBPUSD
above 1.17000 by the end of October, while EURUSD is likely to remain under
pressure. So, opening long positions for GBPUSD from 1.11500-1.12000 with the
targets above 1.17000 are seen to be justified. Nonetheless, traders should
exercise such trades at low volumes and tread with extreme caution as it is not
expected to be a short-term trade.