Technical Analysis

The relief rally looks to build further on the week

There was a bit of uneasiness when Treasury yields turned late yesterday but stocks managed to hold on, with S&P 500 futures posting a stunning 2.6% advance and the Nasdaq gaining by 3.4%. Once again, the technicals make sense and we are seeing broader markets find some relief as the UK political and gilts crisis start to die down.

This chart remains the most pivotal one for equities sentiment in my view and we are seeing the S&P 500 hold at its 200-week moving average (blue line) at around 3,605 with the 50.0 Fib retracement level adding an additional support layer at 3,505. That region remains the key area to watch heading into the central bank bonanza in the next two weeks.

While there is scope for equities to push a little higher for now, the overall backdrop remains rather challenging and even with the gains yesterday and S&P 500 futures being up 70 points, or 1.9%, now, a major reversal is rather unlikely. There needs to be a change in the fundamentals for that to happen and we aren’t there yet.

So yeah, the relief rally may look to extend but don’t be surprised if the risk-on sentiment gets caught offside and we see a return of heavy selling with central banks starting to come back into focus again ahead of October month-end.

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