July 20, 2021 15:50:03

The US has opened and the dip buyers are back in. US stocks are higher and Treasury yields have rebounded. Feels like a classic “turnaround Tuesday”? After the risk rout to kick off the week, markets have stabilised though the dollar is bid again and clearly aiming for the year-to-date highs.

S&P500 uptrend hard to ignore

Yesterday’s ugly session in the broader US equity index found support almost precisely at the 61.8% retracement of the recent rally at 4,225. The 50-day SMA also supported prices and dip buyers are out in the force today to back this up today. This indicator has acted as pretty solid support for some time, but if it does give way in the current fragile environment, the mid-June lows come in at 4,164 before the May lows at 4,056.

Is this just a correction or something more prolonged? We can’t emphasise enough how much we often see exaggerated moves in summer markets. Expert analysts try to convince themselves of the reason for big moves when the simple lack of liquidity means markets are thin and prone to volatile price action. For what it’s worth, we have just seen the fourth selloff in the S&P500 this year where corrections have generally been around 4% to 5%. If today’s bounce holds, the selloff will have been around 3.6%.

Bulls will be cheered by the more positive momentum today though the MACD is firmly in the red. Rebounds have also generally been quite swift so it will be interesting to see if we can simply carry on higher and follow the long-term bull trend. If anything, delta variant concerns clouding the global recovery picture will mean a delayed start to tapering. This points to more upside as the punchbowl remains half full in terms of monetary policy stimulus. Of course, that cloudy picture could become more stormy with further lockdowns across the globe.