Stocks may follow commodities lower

Stocks have been lagging the recent sell off in risky assets. Although they have failed to break above key levels, they remain fairly well supported and most indices have been trading sideways in the past couple of weeks. That compares with commodities, the CRB/ Thomson Reuters index has fallen nearly 10 per cent since the start of this month.

But if the recent bout of risk aversion continues to hit the markets then stocks are unlikely to muster much support to move higher and may start to come under downward pressure.

Some technical indicators suggest that the US 500 index may be about to turn. The MACD on the daily chart has potentially turned bearish and the RSI indicator is decidedly pointing downwards, suggesting weaker US stocks.

Below 1,335 we may see to 1,325 – the 50-day moving average, and then 1,308 – a key support level as it is the top of the Ichimoku cloud and the 100-day moving average. Below 1,308 then the US 500 is no longer in a technical uptrend.

If the US follows European indices lower today then we could see these levels reached in the immediate future. Of course corporate earnings data later this week may lend some support to the indices, but is investors’ risk appetite remains constrained then we may see stocks start to falter.

Source: Forex.com

16.05.2011