Consumer Sentiment, leading Indicators Help Support S&P 500
Stock markets closed higher once again for the week, in a story that is becoming all too familiar for stock investors. The S&P 500 managed to hit another all-time high as macro data was supportive of the bullish sentiment. For the week, the S&P reached levels north of 1667, which is its highest closing value in history and the end result of its 2.1% gain on the week. The Dow Jones was also higher, by 0.8%, to close above 15,350 (also a record close for that index). Traders paying special attention to the current earnings season saw this move as something of a surprise given that there were a few disappointing profit releases from key corporates.
Two of the bigger headlines in this area came with Dell and JCPenney, which posted first quarter results that were lower than market expectations. JCP saw a drop of more than 4% as the company continues to struggle with its same store sales numbers. Dell was an even bigger disappointment, with profits dropping nearly 80% for the fiscal first quarter (the period ending May 3).
Most of the explanation behind the drop in Dell profits is coming from the added expenses the company has incurred in its attempts to take the company private, as well as the negatives created by a faltering PC market. Sales of PC have dropped nearly 15% in the first quarter, and this is highly indicative of a major shift in the consumer. This shift sees consumers using tablets and smartphones are the primary way of both communicating and browsing the internet, and this is likely to weigh on PC makers for the remainder of the year.
The S&P 500 saw more significant impulsive breaks and rallies above key psychological levels last week, with prices rising to new all time highs ab 1665. The high for the week again saw minimal pullbacks, so it is starting to look like we will need to see some corrective downward moves before sufficient momentum can be generated for another run higher. Clearly, the index is a buy on dips at this stage, and the first level of support now comes in at 1620. If we do see a downside break here, the bias turns sideways with a test of psychological levels at 1600.
The FTSE 100 moved higher with the S&P 500 higher and the FTSE has now broken above major historical resistance levels at 6680. The outlook for the index remains bullish but we will need to see a correction back to 6640 in order to get back into long positions. Resistance ahead is now seen at 6750. Indicator readings are beginning to become overstretched so there is now a better chance that we will see at least slowing bullish momentum as trading begins next week.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.