Stock Markets Rise on Higher Earnings
Stock markets closed higher for the week, as corporate earnings continue to beat analyst estimates and investor sentiment was supported by global macro data. The S&P 500 was higher by 1% for the week, even with the negative close into the close on Friday. Friday’s performance was the first downside close in 5 days, as investors took profits after the previous rally and took advantage of the elevated market valuations. The Dow still managed to close higher, however, as broad based momentum is still pointing in a generally positive direction. By the Friday close, weekly performances showed the Dow higher by 1.1%, the S&P 500 higher by 1.7% and the Nasdaq higher by 2.3%.
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.
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.
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.
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.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.