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The S&P 500 is down as the Metropolitan area of Melbourne is locking down for six-weeks. The markets are also down on profit-taking. But the overall trend remains upwards for now, and I suspect we could see higher prices in days ahead.
COVID-19 cases in Australia had overall been drifting lower with a daily high of 30 cases in May. However, on June 26, the May high was broken as the country registered 37 new cases. Since that day, the daily cases have increased further, and the latest reading was for 137 cases.
Australia New COVID-19 Cases per Day
In the USA, new cases have also soared, but the number of new deaths remains surprisingly low. If we look at the relationship between new cases and deaths over the last couple of weeks, the number of deaths should be around 2000 per day. Instead, yesterday saw 378 people lose their lives preceded by 262 the day prior. This might be explained by it being younger people getting Covid-19 while the older part of the population stays indoors.
To terminate the downtrend in the USA, new daily deaths would need to rise above the June 23 high of 871. If this were too happened, or people thought that the downtrend was about to end, then we should see stock market volatility rise.
Until that happens, I suspect people will keep on buying the S&P 500 as they have done in the last couple of days.
S&P 500 Technical Outlook
From a technical point of view, the S&P 500 triggered an ascending triangle pattern on July 5. The pattern is created by treating the June 16, 17, 19, 23, and the July 2 highs as horizontal resistance. An upward sloping trend line is formed by linking together the June 15 and 28 lows. With the help of these two lines, we can derive the patterns take-profit level of 3339.
The price traded back into the pattern today, but as long as the price trades above the 3103 level, the pattern will remain in play, and I will assume that the S&P 500 trade higher.
By Alejandro Zambrano, Chief Market Strategist at ATFX.
