S&P500 shakes off Delta scare to set sights on new highs
Tony Sycamore July 21, 2021 6:00 AM
The spread of the Delta variant rattled global stock markets in the early part of this week. Investors fearful that it might lead to widespread lockdowns and become a significant hinderance to the economic recovery.
UK government advisors estimate the basic reproduction rate of the Delta variant at 7, more contagious than its predecessor, the Alpa variant, with a reproduction rate of 5.
However, vaccines have proved effective, and vaccinated individuals are far less likely to become seriously ill or hospitalised from Delta. As such, widespread lockdowns are unlikely in countries and regions that have a higher vaccination rate.
Specifically, in the key larger economies currently driving the recovery, including the US, China, and Europe, the vaccination rate is closer to 50%. This realisation has prompted a swift recovery in stock markets.
After falling by over 700 points on Monday night, the Dow Jones recovered most of those losses following a 550 point rally overnight. The S&P500 spring boarded 65 points higher, closing at 4323, +1.52% higher.
The correction in US stock indices was not unexpected if only for a reason the rally had become overextended. More so in July as investors committed fresh capital into the market for the start of a new quarter, and from traders buying call options looking to take advantage of the bullish seasonality during the first two weeks of July.
As can be viewed on the chart below, the S&P500 has held and bounced well from uptrend support at 4224, drawn from the pre-US election 3225 low of late October. Providing the S&P500 continues to hold above Monday’s 4224 low, the expectation is a retest and break of the 4384.50 high.
Aware that should the S&P500 break and close below 4224, a deeper pullback towards the June 4126 low is possible, with risks towards the May 4029 low
Source Tradingview. The figures stated areas of the 21st of July 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.