Learn to Trade – Equity Index 12th July
Overview
Last week the S&P 500 achieved its strongest week of gains in 12 months as bulls returned to the party ahead of Q2 earnings season that begins in earnest this week. This week earning releases from several large blue chips including JP Morgan and General Electric will be in focus as well as the latest US Retail Sales figures.
Thoughts from the trading floor
From a technical perspective last week was very good for bulls as the S&P 500 future broke back above several key resistance levels. Crucially the market rose back above the neckline (1035.00) of the large potential head and shoulders formation and in doing so also cleared resistance at 1036.75. This move now invalidates the technical formation and returns the market to its previous trading range between 1030.00 and 1130.00. To the upside further resistance lies at 1091.00, a breach of here would provide an opportunity to challenge June highs at 1129.50. For now it is fair to say the market is in balance and despite the recent strong performance bulls still remain under pressure as long as we are trading below 1129.50
This week Q2 earnings season begins and is kicked off by Alcoa which most analysts expect to see move from loss to profit. On Thursday we will see the first of the banks report in the form of JP Morgan. Many analysts have been downgrading their expectations for results out of the financial sector, as a result of this increased uncertainty we expect the markets to react strongly to any surprises. On Friday we see more financials report with BOA and Citigroup as well as the bellwether stock GE. Often the markets are very quick to judge how the earnings season will go by the early releases, so expect volatile market conditions if we see a large shocks this week.
Over the next 10 days traders will be looking out for further clues as to the stress test results of European banks. This represents Europe's latest attempts to convince the markets that all is well in the Eurozone and as a result we expect all banks to pass. However this will not prevent rumors circulating this week regarding the results ahead of the release next Friday.
Finally we expect US Advanced Retail Sales to garnish a lot of attention this week after the recent downturn in fundamental data. Any surprise here, particularly to the downside, would likely see a large market reaction.
Important events this week.
- Tuesday: ZEW Survey (Ger)
- Wednesday: Advanced Retail Sales (US), FOMC Minutes
- Thursday: Initial Jobless, PPI, Phili Fed (US); JP Morgan Google earnings
- Friday: CPI, Michigan Survey (US); Citigroup, BOA, GE earnings
Bull View
Bulls will be very pleased that the large head and shoulders formation has been invalidated and will look to build on last weeks gains. Their medium term target should be a test of resistance at 1129.50 in the S&P.
Bear View
Last week gave equity bears a reality check, however they are still very much in the ascendency. Patience may be required this week as recently earnings have resulted in a short term bullish trend.
Futex View
We remain bearish equities in the medium term but expect to see some resilience over the next couple of weeks as earnings are released. The elevated level of Bund and Gold continues to point towards the uncertainty that remains in world markets.
Tags: Bears, bellweather stock GE, BOA, Bulls, Citigroup, Eurozone, futex, GE Earnings, General Electric, JP Morgan earnings, Q2, S&P 500, US
