Learn to Trade – Equity Index 19th July
Overview
Last week was a very mixed bag for equities, some positive news on the earnings front particularly from JP Morgan was overshadowed by poor macro releases. As a result of this conflicting news the market achieved very little over the last five days finishing where it started.
Thoughts from the trading floor
From a technical perspective equities appear to be in balance and the momentum Bulls had last week appears to have been lost. The broad sideways pattern in the S&P 500 future has been in place since early June and will most likely continue until there is a strong catalyst for a break in either direction. It must be noted that a downward daily trend line exits in the S&P 500 dating back to 13th May with the most recent touch coming last Thursday. Today the trend is at 1096.00 and we may see it come into play over the next few weeks, a break could easily result in a strong leg higher. Beyond the trend line further resistance lies at 1129.50 and below key support can be found at 1036.75 and 1002.75.
Last week Q2 earnings season kicked off with bellwethers such as GE and JP Morgan reporting. Overall results were strong indicating that corporate America was performing well, however much of the gains produced were retraced on the back of poor macro data. On Friday the Michigan Confidence survey showed a large drop coming in far below analysts estimates, 66.5 Vs 74.5. This caused a pronounced sell off and set the tone for Fridays afternoon/evening session. This conflict between earnings and macro data may continue this week with several large releases including Goldman Sachs Q2 and US housing starts. It is likely therefore that the choppy trading conditions witnessed last week will continue over the next few days.
This morning Moody's downgraded Ireland's sovereign debt rating one notch to Aa2, a move that brings it into line with other rating agencies. We did not see an extreme market reaction to this news although it will undermine some of the positive sentiment generated by last weeks strong earnings. We believe that the European debt crisis is far from over and that later this year other counties including the UK may find themselves under pressure.
Important events this week.
- Tuesday: Housing Starts US, Goldman Sachs Q2
- Wednesday: Morgan Stanley, Wells Fargo Q2
- Thursday: Existing Home Sales US
- Friday: IFO Germany, GDP UK, European Bank Stress-test results
Bull View
Bulls will hope that earnings can win out over any poor housing data this week causing a break in the S&P trend line (1096.00). Their medium term goal will be to break back above 1129.50 as this will open the door for a re-test of the yearly highs.
Bear View
Bears will remain confident that the majority of macro data releases back their cause but may have to remain patient over the summer months for the next leg lower.
Futex View
We expect this week to produce choppy trading conditions with equities struggling to achieve any significant gains. In the medium term we remain very bearish and will continue to sell into rallies.
Tags: equities, European Debt, GDP UK, GE, goldman sachs, IFO Germany, JP Morgan, Macro, S&P, US Housing, Wells Fargo
