In recent weeks, the global financial scene has become fixated with the Iran War.
The stock market has shown surprising resilience despite the fact that the attacks which killed Iran’s Supreme Leader and “retaliation’ by the country were widely expected to cause a drop in the price of stocks.
Investors remain trapped in purgatory despite this apparent stability. They are waiting for clear signs that geopolitical risks have been digested.
Experts say there is one technical landmark that signals the bulls’ official regaining of control.
Why has the US stock market remained robust?
Fundstrat’s technical strategist Mark Newton described the market as being “quite subdued” in spite of its lack of surrender.
Investors are focusing on the economic fundamentals that have been more stable than anticipated, rather than just the immediate conflict.
Newton, in a brief published recently, wrote: “Market has been amazing at weathering a lot of bad news without breaking down.”
Markets’ ability to withstand shocks, such as energy price spikes or retaliatory strike, while not breaching their yearly lows indicates that “the wall of worry” has been climbed, rather than broken.
Additionally, US domestic production has served as a cushion against the “oil-shock” narrative which typically occurs in conjunction with Middle Eastern instability. This allows US stocks to be “decoupled” from worst-case scenarios.
What is a good buying signal in US stock?
Mark Newton says that for the S&P 500 to fully recover, traders should look out for a break decisively above the intraday high on Monday of 6,901.
The index reached a new high on Wednesday of 6,885.94, but could not break through.
Newton said that if SPX could climb above “this past Monday’s lows,” it would be reasonable to assume the current level of prices.
This psychological barrier proves that buyers will commit money even in the midst of a conflict. The market will remain in suspended animation until this Monday ceiling is broken.
Newton warned that S&P 500 was “trapped” in its tightest trading range, meaning any eventual break-out – no matter what happens – will be explosive.
What can we expect in the future from S&P?
Newton also argued that the tight range of trading will “be resolved sometime in March.”
Investors should be aware of the following: The “Iran War Discount” won’t fully disappear until SPX can prove it is able to trade at levels similar to those seen prior the most recent escalation.
The market will continue to tread water until 6,901 has passed.
If you can breach that threshold, it will not only silence the critics, but also confirm to Wall Street that the crisis has gone from being a major market factor, down to background noise.
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