Volumes remain exceptionally low, even for this time of year, with all eyes on some major central bank meetings over the next week, starting with the Jackson Hole presentation tomorrow. These meetings will clearly have a huge impact on the next move for equities, but for me it is quite interesting to see the attached chart of the Russell index, the US benchmark for small cap stocks. As highlighted in the chart attached, there appears to be a clear inverse head and shoulders pattern forming. We would require a move higher on decent volume over the next few sessions to validate the pattern, and a weekly close in the S&P above 1415 would certainly give the bulls a greater level of comfort. Fundamentally, the set-up of small cap stocks suggests there is demand for risk in the market, should we make the move higher the target would imply around 10% further upside, either way we are at a critical moment in time, good luck for the week ahead.

Further to the note above I thought it would be worth reflecting on events over the past week and now highlight were we stand with global markets. It was noticeable that last week prior to the ECB meeting US small/midcaps were outperforming, I highlighted the potential for the break through the 815-820 level which has been achieved on relatively higher volume. We now stand at just shy of 840, but the ultimate target on the pattern highlighted below remains around 900. On the broader S&P index, many are now focusing on whether the index can hold above the 1425 and given the aforementioned small cap performance, the odds of holding look good. FOMC minutes and the German constitutional court hearing over the next couple of days remain key.

Philip Ball | Sales and Trading