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S&P500 is ready to win new tops

The forecast September 5 - 9:


This week, there is a mixed background. On the one hand, "risk appetite" is growing thereby putting Gold under pressure, because gold is a safe asset for investors. The last week the world's leading stock markets finished in the "green zone", the high-yield sector of cross-rates was also surging. Thus, number of carry trade transactions is growing mthus making the capital leave the safe assets. On the other hand, after disappointing US labor market reports for August we can expect weakening of US dollar on the foreign exchange market, which in turn is a positive sign for gold. Gold is denominated in US dollars and when it drops, gold is gradually going up. So, this week we expect flat 1307 - 1337.


In the beginning of the week we can expect correctional growth caused by profit taking on short positions. On Friday investors began to close short trades after weak US macroeconomic statistics. In the first half of the week we expect this trend to continue. Then, in my opinion, we will see a continuation of the downtrend. The oilfield services company Baker Hughes has once again reported about growth of number of the US drilling rigs by one - to the level of 407. On the one hand, there is nothing critical about it. However, we must remember press releases by the leading US oil shale mining companies (Devon Energy and Pioneer Natural Resources) having claimed an increase in investment in new drilling rigs in September. September has arrived and the coming week we can expect accelerated growth of number of drilling rigs. We can not forget about a seasonal factor: US driving season is coming to the end, which usually boosts oil reserves. Reserves usually fall in August and moderately grow in September. This year in August crude oil reserves grew by 3.3 million barrels. For example, in September of 2015 oil reserves rose by 2.4 mln. barrels. This growth is a negative factor for the oil price and after an upward correction, investors may start to build on short trades at attractive levels again. So, this week we should open Sell positions on growth of quotations to 47.20/48.00 and settle profit at 45.45.


The US market is about to set a new historical High. Such chances grew a lot after the labor market release in August. We did not see strong data, which was required to raise the interest rate on the FED's meeting on 21 September. Traders breathed again and got prepared to win new tops. Raise of the interest rate is usually painful for NYSE investors and now they can safely open long positions. Can we expect a strong growth of quotations, or after a new peak, we will see a downward spiral? The second scenario is more probable. First, P/E multiple for S&P500 is now at historical highs, and at any time a strong correction may happen. Second, September is a bad month for the US stock market. Over the past five years, four of them were closed in the "red zone". For example, the last year September's decrease of quotations in was 2.72%. In this context, institutional investors can first move the market up to sell its assets to retail traders. So, this week we should open Buy trades on drop to 2175/2165 and take profit at 2194. The we should Sell and settle profit at 2170.

Aleksey Panasenko
Analyst of «FreshForex» company
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