We have been noting for several weeks that equity indices have struggled for positive traction. Markets are in a difficult phase of trading where corrections are either not forthcoming or bear little fruit, but where also the bulls are in a state of frustration with the lack of breakout traction. We expect that this period may continue, but still see weakness as a chance to buy. 

  • The S&P 500 has struggled for traction since early May as “real” yields have begun to range. The negative correlation remains an issue.

  • Technicals on S&P 500 futures show a mild positive bias but still within the uptrend channel.

  • FTSE 100 is edging higher but better entry points could be seen

  • German DAX looks to have the strongest technical outlook


S&P 500 struggling as “real” yields stabilise

Indicies have been trying to pull higher, but it seems like the bull run is stuck in treacle. Looking into the reasons why we find that the S&P futures have a fairly strong negative correlation with the direction of “real” bond yields (bond yields minus inflation). 

This is because when real yields are falling, there is much less pressure on the Federal Reserve to cut back on its $120bn per month emergency asset purchases brought in to battle against the pandemic economic slowdown.

However, “real” yields have flattened and even threatened to move higher in recent weeks. The chart below shows how periods of ranging or rising real yields coincide with ranging or negative moves on US equities.

US yields and index futures

We believe that if “real yields remain stable then S&P 500 futures may struggle for any meaningful traction and likely continue to range.


Technicals reflect the struggle for the bulls on S&P 500 futures

So turning to the technicals, there is a positive bias on S&P 500 futures (MT5 code: SP500fut). Testing all-time highs again this morning, the market is still decisively within the uptrend channel. The futures are testing the key resistance band 4210/4237 today.

A breakout could easily be seen, however, the question would be how far the bulls can go before being dragged back once more? Here are the reasons why we are cautious of chasing breakouts:

  • Relative Strength Index struggling at 60 (we would want this to be driving towards 70 on a decisive breakout).

  • MACD lines (not shown) are rising, but are again underwhelming

On the plus side, there is a positive outlook on Stochastics (not shown) and we certainly favour long positions. We just believe there will be better entry points, with the initial support at 4170 and the 55 day moving average (rising at 4130) a key basis of support.

S&P futures technical analysis


FTSE 100 similar positive bias and a struggle for traction

It is a similar picture with the FTSE 100 index (MT5 code: UK100). The bulls are in control within the uptrend channel and the market is trading above moving averages. There is a run of higher lows over the past month and the index is looking towards a test of the resistance band 7120/7165.

We like the momentum configuration, but the RSI could be (and probably should be) stronger if this was going to be a key breakout. Our concern is that the RSI has struggled around 60 over the past month and is again doing so as resistance approaches. 

FTSE 100 technical analysis

Subsequently, once more we are wary of chasing the index for breakouts. We prefer to buy into weakness, with the 21 day moving average (c. 7035) a good initial basis of support.


DAX is the best positioned

Meanwhile, the German DAX (MT5 code: GER30) appears to be the best positioned of all the major indices. The breakout has already been seen with a move through 15,535. This completed an upside break from a consolidation range into all-time highs and implies 16,270 in the coming months. 

Our cautious optimism that comes through equity indices suggests that buying DAX into a pullback would be our preferred strategy. There is a good band of support now 15,470/15,535 to contain an unwinding move. The bulls would be disappointed with a break back below 15,350 support now. 

DAX technical analysis



We are cautiously optimistic about indices. With US real yields no longer falling, this tends to coincide with a more difficult period of trading on US equities. This is likely to impact across major indices. Given the lack of decisive momentum, we would be looking more to buy into weakness.