18th January Equity market overview
18th January 2010
Equity Index
Overview
Last week the S&P 500 future closed down slightly after a negative reaction to JP Morgan’s earnings and a weak Michigan figure resulted in a pronounced sell off on Friday afternoon. This week all eyes will be on earnings again as many financial and blue chips release their latest figures.
Thoughts from the trading floor
From a technical perspective world equity market appear to be shifting towards a more balanced picture. Although both the S&P 500 and Dow 30 futures posted new yearly highs little momentum was seen. More significantly the NASDAQ 100 that has lead so much of the recovery consistently outperforming other indices appears to be stalling. This could easily be another consolidation before a further leg higher, but one thing points to another possibility. This morning the Dax future opened below a weekly trend line (5920) which can be drawn from the March 2009 lows, this represents the most bearish technical sign we have seen for months and will no doubt tempt some sellers into the market. The US indices charts are not quite so clear but a daily trend line is approaching in the S&P 500 at 1129.75, if this were to break this week a test of 1100.00 would be possible.
Last Friday JP Morgan announced their latest earnings and although they beat analysts’ estimates they came in line with the whisper number. On the face of things these results should have been met with positivity but the market did not see it that way with equities immediately losing ground and remaining under pressure for the remainder of the day. There appear several reasons for this, firstly expectations were so high for this quarters earnings that anything below stellar results was going to raise eyebrows, setting up a buy the rumour sell the fact scenario. Secondly Jamie Dimon’s comments released with the earnings were relatively down beat, he warned that difficulties still persisted within the banking world as he appeared to be trying to cool future expectations. Finally accounting methods used showed that thanks to a change in tax declarations the EPS was 20% higher than it otherwise would have been.
This week earnings will dominate headlines, particularly those of financials. Citigroup, MS, Goldman Sachs, BOA and Wells Fargo will all be under the spotlight and it appears considering the markets reaction to JP Morgans results any signs of weakness will be met with equity selling. It may be worth paying particular attention to Goldmans results as they have consistently lead the way in recent times, disappointment here would certainly rattle confidence.
Bull View
Bulls will be aware of the weekly trend line break in the Dax and will hope to invalidate it as soon as possible. They will hope that the negative reaction to JP Morgan’s earnings last week will have lowered expectations setting the market up for a rally this week.
Bear View
Bears will hope that Alcoa and JP’s earning will have set the trend for the rest of the earnings season and that this may mark the top of the current bull run.
Futex View
We don’t believe this weeks earnings will throw up any major surprises, we expect most financials will have better than forecast results but don’t expect this to be greeted with much equity buying. We believe that this earnings season will coincide with a market high in the medium term. From a technical perspective we believe a close below 5920 in the Dax should help other equities to approach their technical levels with breaks the most likely outcome.
