US Stock Market Futures Break Major Levels

Alan Penny

18 November 2019

3 min read

wall street

  • All three major indices break above large figure
  • Potential trade optimism sneaking in
  • “There Is No Alternative”

During the Friday and early Monday sessions, the United States stock markets showed extreme strength, breaking above major round figures.

This movement always attracts a lot of attention. The fact that the news outlets are starting to talk about it on Monday morning is a sign of more attention being paid to the stock markets from a bullish point of view.

The markets and big figures

A lot of large players are forced to use big figures to navigate the markets, as the sample size of their orders would cause chaos if they threw them into the marketplace all in one shot. That being said, these large major numbers attract a lot of attention through the news as well. Therefore, it gets more people involved from a psychological standpoint.

These numbers are typically based on either 100 or 1000 increments, such as we have seen in the S&P 500 E-mini contract at 3100, the Dow Jones Industrial Average E-mini contract at 28,000, and the NASDAQ 100 E-mini contract at 8200.

All three of these major indices are clearly paying attention to these large numbers, and they have all broken above them lately to show signs of continued strength. The likelihood is that the major uptrend that we have been in for some time will continue.

US stock markets have been rallying with no alternative, in the sense that yield is almost nonexistent around the world. There are several bonds out there that pay nothing or even less than nothing. At this point, it’s very likely that the trading public will be forced into the stock market by default.

Liquidity measures

The markets have no relation to the economy and are based on liquidity measures by the Federal Reserve more than anything else. This has been the case since the financial crisis, as the Federal Reserve continues to push rates down.

It is likely that the scenario will continue since the Federal Reserve has stepped to the sidelines and put the idea of tightening rates “on hold”. This is ostensibly the same thing as being loose with monetary policy.

While it will not use the phrase “quantitative easing”, it’s the exact same thing

Beyond that, the Federal Reserve has also suggested that it was going to extend repo operations, basically liquefying banks, while at the same time expanding its balance sheet. While it will not use the phrase “quantitative easing”, it’s the exact same thing.

At this point, it’s likely that the market participants will continue to jump into the stock market simply because everybody else is.

As long as the Federal Reserve is willing to pick up assets recently even suggesting that buying stocks wouldn’t be out of the realm of possibility in extreme circumstances the stock market will continue to rise. That’s because it allows for cheap money, meaning corporate buybacks will also be a major influence to the upside.

Written By
Alan Penny

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