Dow Jones hits record high, S&P 500, ASX 200 seem hesitant to follow

Whichever metric you use, the Dow Jones reached a record high on Monday. The industrial index saw an intraday break above the July high to reach its highest level on record, and despite handing back most of the day’s gains it still closed above the July all-time high on a closing basis. But this is where Monday’s gains look less impressive when you strip away its record-high status.

Not only did Monday only rise a mere 0.16% from Friday’s close, daily-trading volume was its lowest in seven weeks. A shooting star candle formed alongside a bearish divergence on the daily RSI (2), and the daily high-low range was smaller than Friday’s ‘dovish-Fed’ rally.

Dow Jones technical analysis:

But more importantly, Dow Jones futures failed to confirm the breakout on the Dow Jones cash market. We’re also seeing a similar hesitancy across other correlated markets such as the S&P 500, Nasdaq 100 and ASX 200. And this brings the potential for the breakout on the Dow to be a fakeout (bull trap) unless other markets close the gap to join the Dow at new highs.

Bears could seek to fade Dow Jones futures if it moves towards its record high, while monitoring price action on the S&P 500 to see how it behaves around its own record high. Also note that AUD/USD (another proxy for risk) has stalled at its own key resistance level around the July high, just below the 68c handle.

Wall Street futures positioning (S&P 500, Dow Jones, Nasdaq 100) – COT report

While I favour a pullback from the highs for indices, such pullbacks may be limited looking at net exposure on the CME futures market. Asset managers remain definitely long S&P 500 futures, making it the favoured vehicle for long bets during good times. They also flipped to net-long exposure to Dow Jones futures last week. Although it is clear they lack the confidence of the S&P 500 despite the Dow reaching a record high, which brings another question mark against the Dow’s close on Monday. Asset managers remain firmly long Nasdaq 100 futures as well, although the S&P 500 is clearly the favoured one of the three.

S&P 500 technical analysis:

As mentioned, the S&P 500 failed to reach a record high on Monday despite the might of asset managers behind it. The daily chart shows futures volume has diminished for three consecutive days, and upside volatility is dying down.

While the 1-hour chart is clearly within an uptrend, it has now entered a sideways range between 5580 to 5670. An established bearish divergence is also apparent on this timeframe, and the bearish candle yesterday was accompanied with high volume. The bias is to fade into rallies towards last week’s highs or the record high, for a retracement towards 5500, near the lower 1-week implied volatility level. If we see such a retracement, we can revisit its potential for bulls to step back in.

ASX 200 futures (SPI 200) technical analysis:

When I look at the daily chart of ASX 200 futures, I see a market which seems to be pushing its luck to the upside. Again, we see rising prices on diminishing volumes, yet somehow it continues to move higher. However, like the S&P 500 – the ASX us yet to retest its record high. And that is a key level that seems likely to crack first time around.

The-1 hour chart shows the strong trend, although a bearish divergence is forming. But until price action says otherwise, the bias remains to seek dips in anticipation of a move towards 8100. But unless we see the S&P 500 reach a record high, I’d prefer to step aside. Alternatively, countertrend bears could seek to fade into moves towards 8100 with a stop above.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge