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Ahead of the fourth quarter earnings season, sentiment remains generally positive on stocks and other risky assets, despite growing COVID cases and virus-related deaths and lockdowns. Investors are betting that with the rollout of vaccines we are going to normal times and thus largely ignoring the short-term risks of the pandemic. In fact, it is the continued support and massive stimulus programs from major central banks and governments that help keep markets sustained at these extreme levels.
Indeed, Jerome, Chairman of the US Federal Reserve, has assured investors}} that the central bank will not begin to wind down its asset purchases later this year, and that it is far from considering its ultra-free monetary policy. We heard similar comments from a few other Fed officials this week, a sentiment echoed by other central banks around the world. For now, the sell-off of US bonds has stopped, and if bond yields start ticking lower from here, it could give the green light for the stock market bulls to stay ahead.
With investors likely waiting for a new earnings front course and given some concern about the recent spike in bond yields, the stock market was in consolidation mode this week. But as the fourth quarter earnings season is about to accelerate, we may see greater volatility in the coming weeks. But with monetary policy set to remain ultra-lenient for some time to come, any stock market falls in the near term will likely be superficial and short-lived, until the Fed begins to wind down talks.
At the time of writing, the {{8839 | S&P 500 futures have potential support around 3773, and an area that previously resisted:
We may see a short term. deviation below this level, but I would still be looking for a recovery from the rising channel support trend.
However, if the index broke down from the channel, that would be the first bearish sign, which could result in a larger correction. Still, the short term bullish bias would not become completely invalid until the index broke the longer term bullish trend line and the last low before the last rally of 3596.
In other words, there's a bit of room to maneuver downhill before the tech outlook turns bearish.
But the overall trend is clearly bullish, with the market making higher peaks and troughs. Until the charts tell us otherwise, I'll continue to prefer looking for dips to back up to rallies that sell.
