Weekly Review 16-20.4.2018.
When the market is confined to a clear trading range, nothing out of the ordinary is needed to cause a sell-off. Despite the fact that on Friday there were concerns about the prospect of the U.S. attacking Syria over the weekend, the main reason for the day’s losses had to do with nothing more than “selling the news.” As far as the big banks go – from Wells Fargo (WFC), to Citigroup (C) and JPMorgan (JPM) – when they kicked off the Q1 earnings season this past Friday, their stellar results were apparently already priced into market valuations.
Last week stocks traded up, the S&P 500 edging up 2.09% and the NASDAQ soaring 3.03%. At the same time, the resistance level on the S&P 500 at the 2,700 point level still represents a significant obstacle clamping future gains; the 50 period EMA goes through the same level, likewise serving as resistance. On a technical level, that creates an interesting game of “good cop, bad cop,” pitting the 2,600 point support level, i.e. the 200-period EMA, which checks the index in the face of any retreat, against the 50-period EMA which has given bulls the cold shoulder, stopping it in its steps in the face of any push to higher ground.
This coming week, dozens of companies will be reporting their numbers, including Procter & Gamble (PG), I.B.M. (IBM), American Express (AXP), and Johnson & Johnson (JNJ). Bottom-line earnings growth is expected to soar 18.5% in Q1 2018. The reports of the 3 large banks on Friday were strong, the bulls boasting their strength leading up to the opening bell, but ultimately it came down to nothing more than “selling the news.” All-in-all, banks have been seen of late as a safe haven, cash piling up in the sector based on nothing more than the simple idea that higher interest rates are better for the financial sector. That is certainly true, but it also served as a trigger for selling this past week.
If Friday’s movement serves as a harbinger or a precursor for what’s going to play out in the coming earnings season, this is the time to reassess each and every one of your stock portfolios. What’s proven true is that even if a company provides the goods, that doesn’t mean that the market’s going to give it the green light to rally.
The main topic as of now is that the market is trading in a confined trading range. The bulls and bears are going at it like cats and dogs, and neither has succeeded in taking a clear lead. This coming week the earnings season will pick it up a notch with more firms releasing their numbers, which will certainly offer more ammo to the bulls or the bears. With that said, after the negative response to banks’ solid numbers this past Friday, it’s hard not to wonder how dazzling the numbers need to be to create or spur positive momentum.
In the event the market gets off to a weak start tomorrow, in other words, opens at a gap down in response to the swift attack against Syria – chances are high that correction buyers will go into action and that we’ll see a short stint in which trading screens are painted green.
Have a great trading day!