Fundamental Forecast for Equity Indices: Bearish

S&P 500

To conclude last week the market responded positively to the mixed June jobs report – while the headline NFP figure was a solid beat at +222k vs. the consensus estimate of +178k, wage growth (inflation indicator) was slightly lower to 2.5% YoY from the 2.6% expected. Looking ahead to next week, the big event will be Fed Chair Janet Yellen testifying before Congress and the U.S. House Panel on Wednesday, and then she’ll appear before the Senate Banking Panel on Thursday. Key data prints in the week ahead are CPI, Retail Sales, and UofM Confidence on Friday. Full details, check out the economic calendar.

Technically, the S&P has been flirting with a breakdown below key support around 2405 after breaching the November trend-line on Thursday. Friday’s rally put the trend-line back into play, and could be signifying that the market is still in a consolidation phase rather than rolling over. If that is the case, the market may not shoot right back to a new high but rather chop around some more before eventually breaking out to fresh record levels.

A clean close below 2405 will likely spur selling pressure. If we see a break, then look for the December slope to possibly add support, but the major focus at that point will be the May low at 2352 and the February 2016 trend-line.

S&P 500: Daily

DAX

Looking ahead to next week, on the data-front the calendar is lacking in ‘high’ impact events. Global markets may respond to Yellen’s testimony on Wednesday and Thursday should she shake things up in the U.S. For a list of ‘low’ to ‘medium’ impact events, see the economic calendar.

The technical posturing of the DAX is precarious, with it ending last week below key resistance in the 12486/537 zone and just above the gap created on the first round of the French elections. If we see a break of 12289, the top of the gap, a fill could come quickly down to 12048. The CAC 40 is already well inside the gap, increasing the likelihood the DAX is soon to follow. A break above the before-mentioned resistance zone doesn’t open up an outright bullish scenario, but it will tilt the chart away from seeing the gap fill for now.