Equities report: Bullish momentum for Equities

Over the past week, there have been bullish signals from US stock markets with all three major indexes moving higher since our report last week.  In this report, we are to discuss fundamentals that could be affecting US stock markets, add a small comment for Google and Tesla, the Fed’s interest rate decision and finally conclude with a technical analysis of the Nasdaq 100.

Google (#GOOG) loses against Epic Games

Google (#GOOG) has lost the anti-trust lawsuit brought by Epic Games, the creators behind the popular game named “Fortnite”. The anti-trust lawsuit, which was brought forward by Epic Games claimed that Google’s (#GOOG) Play Store, operated as an illegal monopoly. The allegations also included the claim that Google illegally ties together its Play Store and billing service, essentially “forcing” developers to use both functions in order for their apps to be included in the store.  In a statement on its website, Epic Games stated “The evidence presented in this case demonstrates the urgent need for legislation and regulations that address Apple and Google strangleholds over smartphones..”. As a result, the ruling could weigh on Google’s (#GOOG) stock price, as the possibility for other lawsuits and the potential reparations that may be awarded to Epic Games, could weigh on the company’s stock price. Moreover, it may impact the company’s revenue over a longer time period, should regulators decide to impose further legislation and regulations, that may hinder Google’s revenue, stemming from their play store.

FED Interest rate decision due out today

The Fed’s interest rate decision is due out later on today, with the majority of market participants anticipating the bank to remain on hold. As such, given the tightness of the US employment market as reported in November’s employment report and the persistent inflationary pressures shown in November’s CPI rates, we tend to see the risks as tilted towards the hawkish side. Yet with the FFF currently implying a 99% probability for the bank to remain on hold, we do not anticipate a rate hike, but rather a hawkish pause by the Fed. In such an event, we may see the dollar gaining, as it may undermine the market’s expectations of 4 rate cuts next year and in turn could weigh on the US Equities markets. Given the lack of market response to Fed Chairman Powell’s last comments, we may see the Fed in an effort to underscore its  message to the markets, overstressing the hawkish tone, yet that remains to be seen. Moreover, the potential for a delay in cutting rates, could increase the potential risk of a recession in the US economy, which could further weigh on the US Equities markets, as investors may opt for more “safer” assets such as Treasury bonds or gold. On the flip side should the bank opt to maintain a more cautious tone allowing for an intensification of the market’s expectations for extensive rate cuts in the coming year, we may see the USD weakening, whilst the Equities market may see newfound support by capitalizing on the prospect of easing financial conditions in near term.

Tesla (#TSLA) recalls 2 million vehicles on autopilot flaws

Per Yahoo Finance, Tesla (#TSLA) has filed a recall of two million vehicles, citing autopilot flaws. According to the article, the recall is in order to fix a defective system that is supposed to ensure drivers are paying attention when they use the Autopilot feature. The “recall” will be via a software update in order to fix the problems, which reportedly covers nearly all of the vehicles Tesla sold in the U.S since it activated the Autopilot feature in late 2015. In conclusion, the acknowledgment of the defect which comes after a two-year investigation by US auto safety regulators, could weigh on the company’s stock price, as it may open the company to future litigations and potential lawsuits, which may weigh on the company’s revenue.

تجزیه و تحلیل فنی

US 100Cash Daily  Chart

Support: 15780 (S1), 15170 (S2), 14555 (S3)

Resistance: 16375 (R1), 16730 (R2), 17380 (R3)

US 100’s price action remained in a relatively tight upwards motion in the past week, with the index currently testing resistance at the 16375 (R1) line. We maintain a bullish outlook for the index given that the RSI indicator is near the reading of 70 implying a rather bullish market sentiment, in addition to the upwards moving trendline which was formed on the 26  of October. Yet, we note that the Bollinger bands appear to widening, in a sign that the price action may be slowly picking up a bit of volatility. For our bullish outlook to continue, we would like to see a clear break above the 16375 (R1) resistance level and the 16760 (R2) resistance ceiling, which is an all-time high for the index. Further than that, the next possible target for the bulls may be the 17380 (R3) resistance ceiling. On the other hand, we note that the price action has hit the upper Bollinger band, which may slow down the bulls or even cause a correction lower for the index with similar signals being also sent by the RSI indicator reaching 70. Hence for a bearish outlook, we would like to see a break below the 15780 (S1) support level, with the next potential target for the bears being the 15170 (S2) support base. Lastly, for a sideways bias, we would like to see the index remain confined between the aforementioned S1 and R1 levels. On a separate note, we would like to highlight that with the Fed’s interest rate decision due out later on today, there may be high volatility in the markets.

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