CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Indices hold their ground

After plenty of volatility, indices have begun to stabilise, and breadth readings suggest dip buyers may be showing up.

Chris Beauchamp ChrisB_IG
Chief Market Analyst, London

Publication date : 2018-10-22T14:42:37+0100

Indices

Source: Bloomberg

An early bounce has helped to restore some measure of positivity among indices, although the weak finish to last week casts a long shadow.

Breadth continues to recover, albeit slowly, providing some hope that the dip buyers are back in action.

The put/call ratio has dropped back slightly, which can indicate that a move higher in price is on the way. A drop in investor bearishness is often a good sign, so this indicator bears watching in coming days.

S&P 500 put/call ratio chart

Put/call ratio chart

Put/call ratio chart

Put/call ratio chart

Even if markets do rebound, it is important to distinguish between various indices. This is not the 'easy money' era of 2017, when all equities seemed to go up, regardless of location, fundamentals or economic outlook.

Instead, we have seen wide divergences develop, and indeed continue, as European and Asian markets fall back.

If the market begins to rebound, and if this rebound continues into year end, as seasonality would suggest, then the indices to look for long positions would be those with the strongest record so far this year, and US indices and the Nikkei seem to be the ones to watch here.

S&P 500 and Nasdaq

Breadth has recovered for the S&P 500 and Nasdaq, even if the price has yet to mount a meaningful rally.

Risk-reward is still probably skewed to the upside here, although heightened volatility means the journey may not be a smooth one.

S&P 500 chart

S&P 500 breadth chart

S&P 500 breadth chart

S&P 500 breadth chart

Nasdaq chart

Nasdaq breadth chart

Nasdaq breadth chart

Nasdaq breadth chart

FTSE 100 and DAX

Risk-reward is also skewed to the upside for the FTSE 100 and DAX, but it is important to note that while US markets saw record highs only relatively recently, both these indices have been moving lower during the summer.

Thus upside may be limited, and any rebound in price and breadth could well bring out the sellers once again in due course.

FTSE 100 chart

FTSE 100 breadth chart

FTSE 100 breadth chart

FTSE 100 breadth chart

DAX chart

DAX breadth chart

DAX breadth chart

DAX breadth chart

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

Find articles by writer

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Professional Clients can lose more than they deposit.

The value of shares and ETFs bought through an IG stock trading account can fall as well as rise, which could mean getting back less than you originally put in. Please ensure you fully understand the risks and take care to manage your exposure.

IG does not issue advice, recommendations or opinions in relation to acquiring, holding or disposing of a CFD. IG is not a financial advisor and all services are provided on an execution-only basis. This communication is not an offer or solicitation to enter into a transaction and shall not be construed as such.

IG is a trading name of IG Limited a company registered at 2702 & 2703 Level 27, Tower 2, Al Fattan Currency House, DIFC, Dubai, United Arab Emirates. IG is authorised and regulated by the Dubai Financial Services Authority (DFSA) under reference No. F001780.

The information on this site is not directed at residents of the United States, Belgium or any particular country outside the UAE and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.