Since the beginning of May, the U.S. stock indices have been climbing daily. They found an edge in the relatively weak employment reports and quite optimistic quarterly earnings. The S&P 500 Index and the Nasdaq 100 Index are only 1.5% below the historical highs set in March.
FxPro senior analyst Alex Kuptsikevich noted: The market slump in the first three weeks of April stimulated the appetite of bargain hunters. There are signs that the economy and the labor market are cooling off, and investors have begun buying back in.
The decline in April effectively eliminated the overbought condition of the stock market, plunging it from the "extreme greed" seen in early March to a "fear" sentiment.
We believe that all three major U.S. stock indices—the Dow Jones, Nasdaq 100, and S&P 500—have returned above their 50-day moving average, which is an important technical signal. A weak labor market report released last Friday tilted the overall trend in favor of buyers.
Although the Japanese stock market lost the favor of speculators last month, their attention seems to have shifted to Europe. The FTSE 100 Index has been hitting historical highs almost daily, up 8% from the low point on April 19. The German DAX 40 Index rose 6% in the same period, only 0.5% below its historic high. These are indirect but quite important signals of global stock market risk preference, which are also favorable for the U.S. market.
The S&P 500 Index's retracement in April to 76.4% of the from last October's low to the high in early April is not the typical 61.8% Fibonacci retracement, but is common in a strong bull market.
If the index rebounds above 5300 and reaches a new historic high, this will confirm the bullish outlook. According to the extension of the Fibonacci sequence, the next strong retracement will only occur in the 6000 point area within a time frame of 6 - 9 months. In this case, the bullish target for the Nasdaq 100 Index will be above 21000 points.
