Stock Markets Make Late Friday Rally on Earnings
The S&P 500 was higher into the end of the week as most of the recent corporate earnings reports out of the US have passed analyst expectations. This maintains the healthy prospects seen for a continued recovery, both in the US and from a global perspective. More specifically, this week’s earnings reports were heavily centered in the tech and financial sectors, with names like Yahoo, Intel, Google and Microsoft coming in on the tech side. In financials, Citigroup, Morgan Stanley and Bank of America generated most of the significant financial headlines on the financial side. We are just getting started in the earnings season but roughly 3/4 of the companies that have reported so far have posted earnings that were above analyst expectations.
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.
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.
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.
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.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.