Weaker Earnings Put Pressure on Stock Markets
Spread betting markets have started to respond to new stimulus points as investors are now seen moving away from the seemingly constant stimulus talk that marked most of the end of last year. Prior to the end of 2013, more spread betting traders were basing their positions on the increased or decreased chances that major central banks (like the US Federal Reserve) would start to express a need to reduce stimulus packages. Other notable examples included the banking bodies governing monetary policy in the Eurozone and Japan.
But now that the Federal Reserve has made the commitment to start tapering, investors have begun looking elsewhere for signs that stocks should be sold-off or repurchased even at these higher levels. Of course, one important area to watch will be the growth expectations for the global economic (with world GDP expected to come in somewhere near 2.5% for 2014). But, more immediately, corporate earnings are likely to be getting much more attention — and recent surprises to the downside suggest that we could start to see some selling pressure in the major benchmarks.
Already, we have seen negative results from companies like Intel, Citigroup, and CSX. Stocks could continue with another negative performance in the week ahead if we start to see evidence that declines in earnings will be seen across broad industry sectors.
The S&P 500 closed negative for the week with market prices under pressure almost from the start. But the most discouraging factor came with the break of downside support in the 1840 region, and this now creates a short term target in the 1810 region. Contrarian buys can be taken at this lower figure given the strength of the long term trend. But keep stops tight, as it is starting to look like a top is now in place just below 1850.
The FTSE 100 is still trudging forward within its uptrend but there are now some warning signs for bulls that could limit further gains and create some arguments for taking profits at current levels. Specifically, we are now seeing double top resistance in the 6790 region, and we will need to see a clear break and weekly close above this level in order to maintain the bullish bias. Support to the downside can now be found in the 6640 region, a downside break here would signal an end to the medium term uptrend.
The DAX is now making its position as the winning stock index when compared to the rest of the majors. We have now clearly broken the 9700 handle, and since we are at record highs it becomes very difficult to gauge new resistance levels. Instead, it makes sense to watch for tests of support in order to find areas for new buy entries. The first area to watch can be found at 9385.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.