Now is the time to make previsions for the end of the year and I will here detail my
views on the major Equities Indexes and on the Bund.
The ECB’s President, Mr Mario Draghi, has already paved the way for a bullish end of
the year with his latest statements about a possible QE extension. The volatility has
also dipped sharply since the August decline, mainly due to China’s woes. Finally, the
bigger timeframes still look incredibly bullish and I won’t be the one to fight such
trends, whether in Equities or Bund.
The S&P500 December 2015 Future has retraced recently from 2110 to a very
interesting level of 2065-2070 and I am long from here, and will eventually add to the
position at around 2050. My fist target will be 2090 and then a new all-time high at
around 2125.
I assume that traders will keep on supporting the DAX on dips and suspect that they
will see the 10.700 – 10.900 range as an ideal region to add to long positions. The DAX
index could even drop lower, to 10.550-10.600 without altering the trend. I am
personally building a long position from the 10.750 area, and will add at 10.650 if we
reach that level.
In the longer run and with better data coming out of the U.S. such as wage growth
reaching a 6 year high by increasing 2.5% year on year, the likelihood of stock markets
globally remaining upbeat rises. If it is the case that the market reaches and breaks the
top of the descending trendline at 11.150, there will not be any major technical
resistance level until we reach first the July high of around 11.800, and probably later
print a new all-time high above 12.500.
A push higher at this time of the year is also consistent with seasonality as traders get
in line to take advantage of the Christmas rally effect. The biggest risk we can see
ahead of us is a Fed rate hike. The first rate hike tends to cause a pullback in equity
markets and the market also tends to be shaky on fear of what that first rate hike may
bring. But, in the end, a rate hike is the sign that the economy is recovering well and
shouldn’t be seen as the end of the world, especially if the pace of rate hikes remains
very slow in the next few years, as I think it will be.
Finally, regarding the Bund, the 10 years Yield has reached yesterday an interesting
level at 0.7% and I have shorted that trendline you can see in the graph (so long Bund
at around 155.25).
I am expecting the yield to go back towards the 0% level, due to QE extension (and
Bund December 2015 Future contract to retest 159 and 160 my next targets).
Happy Trading!
