Chris Ciovacco: U.S. investors have been unsettled by Russian troops, economic concerns in Europe, and a possible shift in the Fed’s interest rate time table. If that was not enough, the term airstrikes is being used to describe possible scenarios in Iraq. From The Wall Street Journal:
The Obama administration is considering airstrikes against Islamic militants in northern Iraq in a move to protect American personnel in the city of Erbil as Islamic militants pose a growing threat to the country’s Kurdish heartland, U.S. officials said. U.S. officials described the likelihood President Barack Obama will authorize airstrikes as increasing. Airstrikes could come even before those humanitarian airdrops, or shortly afterward, officials said, emphasizing that as of Thursday afternoon, the White House had not made any decisions to strike.
Support Can Help With Countless Inputs
Given the potentially bullish implications of a strengthening U.S. economy and the long list of counterbalancing concerns, it can be difficult to make investment allocation decisions. Sometimes the simple concepts of support and resistance can help. The chart of the S&P 500 below shows the market is nearing a trendline that has provided support in the past (see green arrows). The red arrows highlight previous areas of resistance, between 1897 and 1902, that may now attract buyers near the blue arrow.
How can the chart above help us? If support holds, it will increase the odds of a potential bounce-back rally in U.S. stocks, meaning we can exercise some patience with our equity ETFs (VTI). If support does not hold, the odds of further weakness will have increased, and it becomes easier to consider additional defensive chess moves. We learn something either way.
ECB Leaves QE Door Open
The stock market loves quantitative easing (QE) since it injects money into the financial system. Europe is sending somewhat conflicting signals to U.S. investors. The bad news is the European economy is showing some signs of ongoing strain. For example, Italy released negative GDP figures this week. The good news is the European Central Bank (ECB) could launch a QE program in an attempt to spur economic activity and combat persistently low inflation. From Bloomberg:
European Central Bank President Mario Draghi said the risks to the recovery from conflicts including that in Ukraine are increasing. Headwinds facing the 18-nation euro area’s recovery are intensifying after Italy slipped back into recession and the standoff between Russia and the U.S. and its allies escalated into the worst such conflict since the Cold War. Draghi has said large-scale asset purchases are an option for dealing with a severe economic shock, leaving investors seeking clarification on what the trigger could be.
Bulls Typically Stagger Before They Fall
There is another reason to monitor key support on the S&P 500 – a snap back rally remains possible. Prior to the recent bout of weakness in U.S. stocks, the technical picture has been favorable.