US Equities markets move higher

We tend to note that the S&P 500, NASDAQ 100 and DOW Jones 30 appear to be moving in an upward fashion since the beginning of the week. In this equities report, we are to take a different approach than usual and focus mostly on major fundamental issues that surround the US stock markets and end the report with a technical analysis of a US stock market index for a more rounded view.

Citigroup (#C) settles charges with the SEC.

Citigroup has settled charges with the SEC regarding recordkeeping failures concerning underwriting expenses. According to the SEC, Citigroup (#C) “from at least 2009 through May 2019, CGMI used an unsubstantiated and unverified method to calculate and record indirect expenses associated with its work as an underwriter”, implying that Citigroup calculated indirect expense amounts using a fixed percentage of the underwriting fee, in cases it was engaged as the lead underwriter and then used “fix allocation grids” to divide that amount into specific expense categories.

The SEC then alleges that for over a decade, Citigroup (#C) conducted no review for this process, nor did it use a similar process to verify that this method was a reasonable way of calculating indirect expense amounts. However, it is important to note that with the settled cease-and-desist proceedings, Citigroup(#C) did not admit nor deny the SEC’s findings and will be fined a civil penalty of $2.9 million. In conclusion, the fine in itself may not have an impact on the stock price of the company, yet the alleged negligence could have long-lasting implications should further accusations come to light in the future.

Goldman Sachs (#GS) and the China connection.

According to a report by the Financial Times, Goldman Sachs (#GS) used a fund that was set up with Chinese state money to facilitate the purchasing of a series of US and UK companies, including a cyber security business that provides services to the British Government. The potential political and national security implications could potentially weigh on the stock of the company, as there may be investigations being opened into the acquisition of companies that were bought using funds from the “partnership fund”.

In particular, the cybersecurity business, which is stated by FT to be Nettitude, may have access to sensitive government information, as according to them, they provide cybersecurity services for government organizations. Therefore, there may be a higher degree of scrutiny on the company, as the link to the Chinese Government, comes at a time when there are heightened tensions between the West and China.

Moreover, despite the role of China’s investment fund as a limited partner on the advisory committee and the statement by Goldman that “The co-operation fund is a US fund run by a US manager and is managed to be in compliance with all laws and regulations”, the potential risk of Chinese influence, may be of concern. In conclusion, should evidence arise that may indicate a greater influence of the CIC fund, we may see regulatory action against Goldman Sachs(#GS), which in turn could weigh on the stock price.

AMAZON warned about the sale of “unapproved” drugs.

Earlier today, the Financial Times reported that Amazon (#AMZN) is “being threatened with legal action” from the US Food and Drug Administration, over the “unapproved” sale of drugs on its online site. According to the FDA, Amazon has distributed four such products “directly to individual US consumers on behalf of third-party sellers”. The potential legal implications against Amazon could weigh on the company’s stock price, as the warnings by the FDA could potentially be used, as the foundation for a series of lawsuits from individuals who may claim that Amazon’s inaction to ‘protect’ consumers, may be considered as complicit action from the company.

Technical Analysis

#C H4 Chart

Support: 40.70(S1), 37.50 (S2), 33.90 (S3)

Resistance: 42.50 (R1), 45.15 (R2),48.50 (R3)

Citigroup (#C) appears to be moving in a sideways fashion, after having broken above our downwards-moving channel, which was formed on the 27th of July, yet on a fundamental level we maintain a bearish outlook.

For our bearish outlook to continue, we would like to see a clear break below the 40.70 (S1) support level, with the next possible target for the bears being the 37.50 (S2) support base. On the other hand, for a bullish outlook, we would like to see a clear break above the 42.50 (R1) resistance level, with the next possible target for the bulls being the 45.15 (R2) resistance ceiling.

Lastly, for a neutral outlook, we would like to see the price action remain confined between the 40.70 (S1) support level and the 42.50 (R1) resistance level, whilst the RSI indicator also remains near the figure of 50, implying a neutral market sentiment.

If you have any general queries or comments relating to this article please send an email directly to our Research team at research_team@ironfx.com

Disclaimer:
This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

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