Some investors remain skeptical, however, as many of the earnings expectation surveys show that market analysts ar expecting weaker results.  Because of this, it does not actually take much progress in order to beat those expectations.  The positive surprises have been sending stock values higher, but at this stage many analysts are suggesting that stocks are overvalued, with some even suggesting a bubble is in place.

Historically, the summer period is a weaker period for stocks, as one of the most common market maxims is “Sell in May, and go away.”  At this stage, it is unclear whether or not we have actually seen a top in stock values but risk to reward favors the downside and with prices making new all time highs each week, the Sell in May phrase might be more true this year than at any other point in time.  Strong economic data and central bank policies (rate cuts from Australia and the Eurozone) continue to be supportive of the wider trends, so if we see any changes in these areas, expect stocks to drop on profit taking at these more elevated levels.

Technical Perspective 

S&P 500: 

The S&P 500 continues to see significant impulsive breaks and rallies above key psychological levels last week, and prices rose to new all time highs in the region of 1630.  We continue to see only minimal pullbacks from these elevated levels, so there is increased probability that we will see corrective pullbacks next week.  On the hourlies, prices are diverging even further from the 100 and 200 period moving average, and the next major level of support can now be found at 1610.

FTSE 100: 

The FTSE 100 is matching the moves seen in the S&P 500 with even higher highs posted on the week.  This move higher was signalled by the symmetrical triangle break that we have discussed in previous reports, so this bullish rally should not be a major surprise.  Support now comes in at 6530, so we will need to see a downside break here in order to change the bias and take pressure off of the topside.  Either way, the index is still a buy on dips, with the first area of support now seen in the 6530 buy zone.

These whisper numbers came as the result came after the monthly ADP report was lower than market expectations and since this is usually used as a precursor estimate for the NFP number, market analysts started to price in the possibility of a lower NFP report as well.  The positive surprise took caught investors off guard, so the upside reaction in both stock markets and risk currencies was stronger than what might otherwise be expected.  In other news, the European Central Bank reduced interest rates to a new record low at 0.5% in an effort to calm market volatility and bring improvements to market sentiment.  Regional stock markets were also higher on the news as there is an increased expectation that the ECB will maintain an accommodative stance to support the economy.  These pledges will be critical for stock markets around the world as it will be key for judging sentiment and the ability of investors to take on additional risk in equities.

Technical Perspective 

S&P 500: 

The S&P 500 saw some significant impulsive breaks and rallies above key psychological levels last week, with prices rising to new all time highs at 1610.  The high for the week saw only minimal pullbacks, so there is some scope for additional upside as we start trading on Monday.  On the hourlies, prices are starting to diverge significantly from 100 and 200 period moving average, so there is some scope for a test of support now seen at 1595.

FTSE 100: 

The FTSE 100 tracked the S&P 500 higher and the FTSE has now broken out of its medium term descending triangle.  This is a highly bullish event for the index and will place emphasis on the topside going forward.  The index is now a buy on dips, with the first area of support now seen at 6440.

DAX:  The DAX traded higher each day of the week and closed Friday at new weekly highs in the 8120 region.  This area now marks critical short term resistance but there is no sign that the uptrend has ended, and this favors buy on dips strategies.  To the downside, support is now seen at 8190.

The main story for the last two weeks has been corporate earnings, as investors have turned the focus from the sluggish global recovery and the continuing debt problems in the Eurozone.  This view was helped by the US GDP release on Friday, which showed that the world’s largest economy grew by 2.5% in the first quarter of 2013.  This result was much stronger than the 0.4% performance that was seen during the 4th quarter of 2013, and as long as these stories continue, stocks are poised for further gains.

Technical Perspective 

S&P 500: 

The S&P 500 saw some significant short term rallies last week, with prices rising to regions just below the all time highs at 1592.  The high for the week was seen at 1588, so there is some scope for additional upside as we start trading on Monday.  On the hourlies, prices have fallen back to the moving average support seen at 1572, and this area is also a historical double bottom.  A downside break here will take some pressure off of the topside and suggest a test of 1559. Overall, however, the momentum is positive with all relevant moving averages pointing upward indicating further gains.

FTSE 100: 

The FTSE 100 again followed the S&P 500 but the pattern structure is showing a descending triangle pattern that suggests a top might be in place for the index.  At the moment, major topside resistance is seen at 6420 and if we do see an upside break here it would be significant because this would invalidate the descending triangle pattern.  But at long as this pattern remains in place, expect prices to fall back into support regions.  On the downside, the next level can be found at 6290 and the overall pattern structure suggests a test near near the end of next week.

DAX:  The DAX traded higher for most of the week and closed Friday at new weekly highs in the 7840 region.  This area now marks critical short term resistance but there is nothing to suggest that prices have found a top when looking at the daily charts.  To the downside, support is now seen at 7730.

This bodes well for the long term potential rally in stocks but we did see some profit taking earlier in the week, with the S&P 500 hitting lows not seen in the last 6 weeks.  But without a major fundamental basis for this move lower, it is better to look at this as a profit taking pullback, rather than a true reversal in trend.  Next week, markets are likely to return the focus back to macro data as the earnings calendar is lighter in comparison.

Technical Perspective 

S&P 500: 

The S&P 500 saw some volatility last week, with some early declines followed by a small rally late on Friday.  On the whole, the weekly performance was still negative and since we are not coming into some important resistance levels, it would not be altogether surprising to see some declines into the beginning of next week.  Specifically, the resistance can be found at the downtrend line beginning on April 11 (creating a descending triangle), and this coincides well with the 100 period moving average on the hourly charts.  An upside break at 1552 would remove this resistance and turn the weekly outlook positive for next week.

FTSE 100: 

The FTSE 100 followed the S&P 500 in terms or pattern structure and created a descending triangle pattern of its own last week.  There is more visible weakness on the FTSE charts, however, as prices fell all the way to support at 6165 before attempting a small rally. This is now the critical level to the downside and a bearish break here will signal that a top is in place and that stop loss momentum is likely to pick up before we can expect any major buying activity.

DAX:  The DAX saw selling pressure for most of the week and closed at new monthly lows on Friday.  Prices are now coming into the 61.8% Fib retracement of the latest rally, so we could see some price support at 7390 before seeing further declines.  A clear break, however, would call for a full retracement of that same rally.

This is generally a negative for stock markets but with widespread central bank support seen around the world, investors have been able to shrug off most of these negatives and push prices higher for the most important indices, like the S&P and the Dow Jones.  The DAX, CAC, and FTSE 100 are also holding at elevated levels, so it is becoming clear that investors are ignoring most of the systemic issues seen holding back progress in the region and pushing stock values to new highs for the year.

Technical Perspective 

S&P 500: 

The S&P 500 closed higher after passing its November 2007 highs, to rise into the 1590 region.  Prices saw increased volatility into the end of the week, however, but the index is finding support at the upper ends of its recent range.  The next important level to the downside can be found at 1560, which is the 38.2% Fib retracement of the latest rally as well as a level of historical support.  A downside break here would be a very bearish event and signal that a near term top is in place in the region of the new all time highs (1590).  In order change the bearish bias, we would need to see a break of resistance in the 1590 region.

FTSE 100: 

The FTSE 100 followed the S&P 500 higher into the end of the week, but still remains lower on a comparative basis (relative to its yearly highs).  Support in the 61400 region is unlikely to be taken out very easily, and this area can be used for medium term buy positions.  Initial moving average support comes in at 6160 so we will need to see a drop to this area before the index is likely to begin attempting to bounce.  But from a technical perspective, the index is looking top heavy and we can start to look at rallies as new selling opportunities.

DAX:  The DAX actually is continuing to hold inside its monthly downtrend channel, and support at the 61.8% Fib retracement of its more recent rally has already been removed.  This makes the index highly vulnerable to further declines next week.  Next level of support can be found at 7630.

The S&P 500 closed below the 1550 level for the week and at this stage it appears as though the downside momentum will continue through to the Asian session this Monday.  In other stock moving stories, the Bank of Japan announce plans for a massive new quantitative easing program that is meant to stimulate inflationary pressures and bring increases in consumer price levels.  The Nikkei saw its biggest yearly gains on the news as investors start to price in some stabilization in the Eurozone and focus on supportive measures from global central banks.  Next week will likely see limited volatility in comparison, as the data calendar is much more limited.

Technical Perspective 

S&P 500:

The S&P 500 closed lower after passing its November 2007 highs, to rise into the 1570 region.  Prices fell sharply into the latter half of the week, however, and the index is starting to look top heavy with its Friday close below 1550.  The next important level to the downside can be found at 1535, which is the 38.2% Fib retracement of the latest rally as well as a level of historical support.  A downside break here would be a very bearish event and signal that a near term top is in place in the region of the new all time highs.  In order to turn the bearish bias around, we would need to see a break of resistance in the 1557 region.

FTSE 100: 

The FTSE 100 followed the S&P 500 lower into the end of the week, but the eventual drop was more substantial.  Support in the 6290 region being taken out very easily.  Prices fell to new lows at 6160 before attempting to bounce, but from a technical perspective the damage has been done and more weakness is now expected.  The next level of support comes in at 6030, first resistance has now moved down to 6290.

DAX:  The DAX actually managed to break below downtrend channel support and fall below the 61.8% Fib retracement of its more recent rally.  This makes the index highly vulnerable to further declines next week.  Next level of support can be found at 7560, first resistance is now seen at 7805.

Technical Perspective 

S&P 500: 

The S&P 500 rose above its November 2007 highs, to reach a new record close in the 1570 region.  The long term uptrend in the index remains intact but now that we have seen prices officially print the new high, we might see some profit taking as investors capitalize on closing positions at the higher levels.  Contrarian traders can take the reverse view, however, selling rallies as downside risk far outweighs upside potential at this stage.  Now that we are at all-time highs, there is no historical resistance to watch but when looking to the downside, first support comes in at 1560, followed by 1545.

FTSE 100: 

Despite the broader strength in stocks, the FTSE 100 is starting to look top heavy after hitting resistance at 6480.  This is not altogether surprising given the proximity to psychological resistance at the 6500 level and we are now seeing a downtrend channel form on the hourly charts.  First resistance comes in at 6390 at this stage, with major support now seen at 6290.  A downside break here will signal that a medium term top is in place at 6480.

DAX:  The DAX is making an attempt to bounce off Fib support at 7760, which is the 61.8% retracement of the move from 7530.  This latest move to the downside has allowed overbought indicator readings to reset themselves, making the index more suitable for buy positions at the current levels.

Trading volatility was mostly subdued last week as there was little in the way of economic data to guide sentiment direction (other than the Retail Sales report).  But this is likely to change next week, as we will see the minutes from the last Reserve Bank of Australia monetary policy (key for gauging interest rate prospects), the Consumer Price Index in the UK, and the next interest rate decision from the US Federal Reserve.  Look for any suggestions of ending dates in US monetary stimulus programs to weigh on stock markets and provide some additional downside momentum for stock markets that are already trading at historically elevated levels.

Technical Perspective

S&P 500:  The S&P 500 showed some stalling after matching its all time high valuation from 2007.  We will need to see a clear break of the 1565 level in order to maintain the bullish long term bias.  From the shorter term perspective, a head and shoulders pattern has developed on the 5-minute charts, and given the proximity to the all time high, the balance of the evidence favors short positions as long as prices hold below 1565.

FTSE 100:  The FTSE 100 was positive for most of the week but then gave back those gains on Friday to essentially post an unchanged weekly performance.  On the dailies, we are now seeing a bearish engulfing candle, and this suggests that prices will see a test of 6370 before any real short term bounce can be expected.  Resistance is now seen at 6470.

DAX:  The DAX was one of the best stock market performers on the week, closing out at the highs near 8050.  Overhead resistance is now very thin, as the next upside target is seen at 8270.  Buying on dips is the preferred strategy.  First level of support comes in at 8010, and this is followed by further support at the 7940 level.

Nikkei 225:  The Nikkei 225 has seen massive upside moves this year, and most of the available indicator readings are showing that a downside correction is imminent.  Buying in at these elevated levels is risky because of this, so for bullish traders, key support can be found at 12,220.

The S&P 500 closely nearly unchanged (a drop of 0.2%) at 1556, while the Dow Jones Index holds near its all-time highs at 14,510.  Trading volumes are seen at roughly 15% higher than the 3-month average, so this helps to confirm the validity of the latest moves.  For the most part, earnings season has produced favorable results at the company level, and this has helped to take some of the focus off of the wider uncertainties that are seen hindering the global economic recovery.

With results like those seen in this week’s quarterly reports, it is not surprising to see many of the most commonly trading indices valued near their all-time highs.  But as overbought activity is taking control in the short term, day traders are looking at sell positions rather than taking the risk of buying into an uptrend at elevated levels. For next week, most of the sentiment will likely be based on developments in Cyprus, with any suggestions of an agreement likely to send valuations to new highs for the year.

Technical Perspective

S&P 500:

The S&P 500 posted a strong close into the end of the week, but prices are now coming into trendline resistance in the 1555 region. An upside break here would be an extremely bullish event and likely lead to a positive close for next week. Removal of resistance at 1555 puts the focus back on the all-time high at 1565, which is key for maintaining the yearly uptrend. To the downside, first support can be found at 1545.

FTSE 100:

The FTSE 100 closed near its highs after attempting to maintain a foothold at the 6300 triple bottom. This is the key area to watch to the downside, as any bearish breaks here would turn the overall bias to consolidative. On the 4 hour charts, we are seeing a downtrend channel develop, so we will need to see a break of resistance at 6370 in order to generate real upside momentum.

DAX:

The DAX is rolling over after hitting resistance at the 8080 level. So far, the index has found active buyers at the 7880 level, and the overall bias remains focused on the upside as long as 7880 holds. The majority of the long term momentum is in the bullish direction, so the trend support buy on dips strategies.

Nikkei 225:

The Nikkei 225 saw a large drop after hitting resistance at 12,670. At the moment, the index appears to be in the early stages of a bearish head and shoulders pattern, so selling on rallies is the preferred strategy until we see a clear break of 12,670.

Technical Perspective

S&P 500: The S&P 500 continues on its massive rally and has shown very little in the way of downside retracements since finding a bottom at 1480 at the end of last month. Clearly, the long term target is seen at the all-time highs of 1565, which are now a relatively short distance away. But while we are still seeing indicator readings with more room to extend, there is relatively little upside potential when compared to downside risk, and this favors short positions in the medium term (using entries above 1555). Short term traders can still get long in anticipation of a 1565 re-test, and the first level of support comes in at 1537.

FTSE 100: The FTSE 100 closed at its highs for the week (at 6480) after coming through previous historical resistance at 6400 without much difficulty. We are seeing an even stronger rally in the FTSE than in the S&P but there is a much larger scope for gains here because the all-time highs in this index are not found until we rise back above 7000. The FTSE is clearly a buy on dips, with the first level of support now seen at 6380.