The magic of round brands

In addition to the European Central Bank’s decision on further monetary policy this Thursday, investors are also eagerly awaiting the monthly US labor market report this week, which will be released on Friday. And yesterday, investors already got a taste of it. The report by the personnel service provider ADP provided first indications of the development of unemployment in the USA. And it turned out much better than expected.

The bottom line was that 2.76 million jobs were cut in May. As a result, the wave of layoffs continued as expected – on the one hand, however, much more slowly than expected and, on the other hand, not nearly as fast as in the previous month. Experts had expected 9 million fewer jobs, after more than 19.5 million job cuts in April – more than ever in a month.

ADP labor market report

For the US government’s official labor market report on Friday, which includes jobs in the private sector as well as jobs in the public service, experts anticipate the loss of eight million jobs after 20.5 million were cut in April. In view of yesterday’s figures, however, investors should assume that the report on Friday will also be better than forecast. However, this has the potential for disappointment.

Investors are happy about improved economic data

Yesterday, however, investors were pleased with the positive surprise. And the stock indices were able to continue their upward trend undisturbed. This was also helped by other data that turned out to be above expectations. For example, the Institute for Supply Management’s (ISM) purchasing manager index, which rose for the first time since the beginning of the year, rose from 41.5 points in April to 43.1 points in May.

ISM Purchasing Managers' Index Manufacturing USA

However, this data has the same problem that I had already pointed out with other data: Although they are better than in the previous month and also better than expected, they are still bad as a cave. A job cut of 2.76 million means that 2.76 million people can earn less money and consume less. And an ISM manufacturing index well below 50 points means that the US industry continues to shrink.

State money

So what are investors so happy about, or what drives them into stocks anyway? I have also pointed this out repeatedly: it is the liquidity provided by central banks and governments. A reader recently wrote to me that weekly unemployment benefits in the US had increased from $ 300 to $ 900. “Previously there was approximately $ 1,200 for all residents for two months and $ 500 for children per month“Said the reader. A basic income has recently been decided in Spain, while Germany is still negotiating an approx. 100 billion stimulus package – presumably including purchase premiums for cars that are already flowing in France.

In other words, the citizen is filled with money so that he can continue to consume diligently and the companies can once again generate decent sales and profits. These are already reflected in the increased share prices. The state pays the bill, at least for the time being, because in the end, of course, the citizens are asked to pay again. So the problems are shifted into the future and stretched in time. This helps the economy first. And that is currently crucial for investors.

The magic of round brands

As a result, the S&P 500 already reached the round mark of 3,000 points on Tuesday last week. The day before yesterday, the DAX saw 12,000 points again for the first time since March 5. And the Dow Jones made it to 26,000 points yesterday. Maybe the Nasdaq 100 can even make it to the 10,000 mark. He is only missing around 300 points or a little more than 3%.

And such psychologically important brands attract the courses. It would therefore be conceivable that the upward trends in the field of activity will at least for a while result in consolidations. The further upside potential would be limited for the time being.

S&P 500 now faces important hurdles

That also seems likely with the S&P 500. Because the index now has the upper line of the former uptrend channel (green) or the supposed trumpet formation (blue) on Thursday Price target mentioned here reached last week (red arrow).

S&P 500 - chart analysis

And at 3,136.72 points, an intermediate high was marked during a recovery during the crash-like downward movement (red line). This level represents horizontal resistance. And so the S&P 500 now faces very important hurdles. After the rocket-like increase to date, it is conceivable that this cannot be overcome in the current attempt because the bulls now lack the strength to do so.

Nasdaq 100 back to record high at record pace

The same applies to the Nasdaq 100. The technology index is close to the all-time high of 9,736,572 points, which it had achieved before the Corona crash.

Nasdaq 100 - chart analysis

And on the way there, it gained an incredible 42.42% in just 49 trading days. In other words, the technology index caught up with the entire crash-like movement in just over 10 weeks. The two previous upward movements with +30.45% in 94 trading days and +33.19% in only 83 trading days were completely overshadowed. Actually, it would be very unlikely that the index can now easily overcome the all-time high as a horizontal resistance after such an increase.

But maybe the 10,000 mark still attracts investors. And it should also be taken into account that the markets are currently in a clear exaggeration. And these can last longer than expected. Even strong cross resistances can be overrun in such a phase. One must therefore first observe how the indices behave at the round brands and the important hurdles. Then you can derive new trades from it.

I wish you much success with your investment
Sven Weisenhaus


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