The US market is still showing optimism thanks mainly to the Federal Reserve. But for how long will this wave of optimism last? Can it last?
This article explains the actions from the Fed, the Covid situation in the US, and the SPX index.
The Federal Reserve called for a continuous and large-scale asset purchase by the U.S. central bank with the aim of helping the economy rebound after the first COVID-19 wave.
Concerning the latter, in these days we are seeing a remarkable increase in new COVID-19 infections in the U.S. Most notably, Texas, Arizona, and North Carolina saw the highest jump in new cases and hospitalization; while, Alabama and Florida reported the record rise in deaths.
If the situation will worsen, it will probably lead to a second lockdown, which may sensibly affect the U.S. economy.
Let’s now have a brief look on the U.S. market through the usual representative index SPX. As visible in the chart (below), the June gap was closed and the market is now approaching once again the resistance level we identified in the 3220-3250 region.
This resistance was recently tested at the beginning of June causing the market to fall by about 6% supported by the 200 period moving average. It will be interesting to observe the market in the next few days since a break through this important level will easily lead to a new all time high while a further bounce may cause the market to fall again down to 2900 – 2950.
Another interesting aspect is the golden cross formation. To whom is not familiar with, golden cross means the upward crossing of the 50 period moving average through the 200 period moving average. Despite its effectiveness is somehow limited, it is a signal traditionally observed by large traders as an indication of new long-term bullish trends.
We also have to remember that the earnings period is starting and it will be very important for supporting the recent rise that the market had in the last two months. As already said, in the case of disappointing FAAMG (Facebook, Amazon, Apple, Microsoft and Google) earnings, the market will rapidly decline.
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Marco Doni – ecs.OPTIONS expert and CNBC contributor
The articles are not intended to give any advice on how to invest money, they are just for educational purposes.