What I Expect Going Into Earnings Season
The
equities and stock index futures markets were able to bounce back from a
negative start to the week and finish mixed. The bulk of the gains were
seen on Thursday, when the key indexes posted their largest single day gains for
the year. Technology shares were the standout sector to the upside, which
wasn’t surprising considering how oversold the group was coming into the week.
Gold/mining shares also stood out, as the price of gold finished near multi-year
highs. Defensive type stocks, such as Drugs and Oil, on the other hand, lagged
and appeared to be out of favor again. When all was said and done, it was
a pretty volatile week of trading with little net price change.
The June SP
500 futures closed Friday’s session at the flat line, and finished out the
week with a loss of —1.25 points. Volume in the ES was estimated
at 554,000 contracts, well behind Thursday’s pace, and below the daily
average. On a weekly basis, the ES posted a dragonfly doji, but still
settled below its 200-week MA. Looking at the daily chart, the ES stalled
just shy of its 38% retracement of the March slide, but still managed to hold
its 10-day MA and 100-day MA support. So far, it’s been a pretty orderly
downtrend channel, but whenever you see the market moving like a Slinky down a
flight of stairs, the climb back up can have a lot of potholes. Why?Â
Because it leaves a lot of resistance lines in its wake, as you can see on the
chart below.
           
The
June Dollar posted a 2nd doji in a row as it continues to consolidate
in a trading range. June bonds reversed off of last week’s doji to post
a weekly bearish engulfing line and a break of 20-day MA support and the
week’s low. The Semiconductor Index (SOX) posted a weekly market
structure low and a daily market structure high as it ran out of steam at its
20-day MA.
Recently,
we’ve started to see a decline in the overall level of market sentiment.Â
Not only are various surveys showing less bullishness, but some pundits have
started to suggest the bull market has run its course. From a pure
technical standpoint alone, it’s healthy to have pullbacks, which serve to move
stocks from weak hands to stronger hands. Markets that continue to move
higher without pullbacks usually are not sustainable bull markets and often end
in a not-so-nice way. With the great benefit of hindsight, it appears that
the correction is now well underway, and has gone a long way in lowering
expectations going forward, which in effect makes it healthy. The tech-heavy
NASDAQ, which was the leader on the way up, topped out in late January and has
led on the way down, dropping in excess of 11%. While we have only seen
about a 7% decline in the SP 500 from peak to trough, the recent decline in
bullish sentiment does suggest that we may not be far from putting in an
intermediate-term low, if we haven’t already. It could take another
sharp move lower to get a final shakeout of the weak hands, but so far, the key
indexes are making respective stands at relevant whole numbers. With
earnings season coming up in a few weeks, at the very least I’d expect to see
a “failing rally†with weak internals. However, until we see
follow-through or negation to Thursday’s rally, respect the range until
broken.
Please feel free to email me with any questions
you might have, and have a great trading week!
Chris Curran