Stocks Supported by Strong Earnings Reports
Global stock markets moved higher into the end of the week, repairing some of the losses seen last week, as strong earnings reports from Nike and Tiffany & Co. were taken along with a potential bailout agreement for Cyprus to help with the improvement in general sentiment.
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.
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.
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.
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.
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.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.