US key stock indices on track to new highs

One of the key things investors remembered from 2018 was the massive market correction into Christmas. With the wound still fresh, investors are understandably nervous even though stock markets are rallying back to their prior peaks.

‘Will it happen again?’ investors ask.

While the Fed promises no market-damaging hikes this year, investors look at oil prices – $64 and climbing. Sooner or later, the Fed will feel the heat if energy prices stay elevated. Already, bond yields have rebounded off their lows. Meanwhile, the yield curve remains dangerously flat – too flat for comfort given its technical precision in predicting past recessions.

Technically, the sharp stock market rally remains intact. Momentum buys could easily push indices into record territories, as I highlighted recently. Psychologically, investors are hesitating. Warning signs are still flashing everywhere, from growth rates to FX markets (see, e.g., this Bloomberg article.) Previous peaks may still reassert its weight.

Both the Dow and the S&P 500 Index is on track to an upside breakout. For the Dow, it is consolidating just beneath 26,500 where some resistance is emerging (see below). Its next resistance is at 27,000.

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