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The S&P 500 rallied on Wednesday as traders began the month of July in optimistic mood despite the debt crisis in Europe.
Latest news out of Greece, indicates that any deal with eurozone finance ministers will have to wait until at least Sunday when we will learn the outcome of the latest referendum. Greeks will be asked whether or not they are willing to accept austerity proposals made my creditors with Prime Minister Alexis Tsipras supporting a vote of “No”. However, latest polls suggest that the public may be swaying towards a “Yes”.
Despite the negativity in Europe, US stock traders cast their fears aside on Wednesday, buying up stocks after the short-term dip. The S&P 500 climbed 0.69% to close around 2,077 although the index did finish slightly off it’s session highs.
9 out of 10 S&P 500 sectors finished in the green with only basic materials lagging behind as the price of crude oil dropped by more than $2.50. Consumer goods, services, and financials, all posted healthy sector gains of at least 0.8% while Chubb Corp was the biggest winner on the day, it’s shares jumping by over 26%. This jump came after Swiss insurance company ACE announced a $28.3 billion deal to buy the company; the largest ever between two insurance companies.
This positive news rubbed off on the rest of the insurance industry with many other names posting healthy gains. Such as Travelers, the second-largest commercial property casualty insurer in the US, which climbed 2.3%.
Not faring so well, however, airline stocks fell back after a US Justice Department announced it would be investigating alleged collusion among airlines with regard to limiting seat availability. Delta, American Airlines, United Continental, and Southwest Airlines all fell at least 1.4% on the day.
Technicals & Outlook
As mentioned previously, SPX had a strong day on Wednesday but did finish slightly off it’s morning highs. Looking ahead, we note that most technical indicators are bearish over the short term, however, there is better risk/reward in being long at this venture. We are therefore looking to buy between 2,056.5 and 2,070 for a move up to 2,090.
That’s because the index is oversold and there is strong support on the 200-day moving average currently standing at 2054. However it appears that the trend has turned down, the pattern looks like a completed head & shoulders and the bounce should be followed by a third wave down. There is a risk the index will decline to 2000-2020 in the next few weeks to catch up with the FTSE as the US index has so far outperformed the FTSE 100.
Thierry Laduguie is Trading Strategist at www.bettertrader.co.uk
