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U.S. STOCK MARKET ANALYSIS & OUTLOOK
- How long can US stock indices dismiss the high interest rate environment? Can earnings overshadow economic slowdown concerns?
- Where to next with the Fed? – Key US data in focus.
- SPX and NDX daily charts suggest near-term breakout potential!
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SPX, NDX FUNDAMENTAL BACKDROP
The S&P 500 and Nasdaq 100 index have been rather muted building up to this weeks tech earnings extravaganza. Equity futures are looking to open in the red during early European trade due to market apprehension as global recessionary fears gain traction. In 2023 thus far, tech stocks and the wider SPX index ignored an aggressive monetary policy environment by the Federal Reserve but now with hawkish Fed speak seen last week, investors are unsure as to the Fed’s outlook moving forward. Money markets are currently pricing in a 25bps rate hike next week with an almost 90% probability – generally a negative for stock valuations as the value of future earnings looks less appealing.
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FEDERAL RESERVE INTEREST RATE PROBABILITIES
Source: Refinitiv
This week is as much about earnings as it is about US economic data and its impact on the Fed’s trajectory for 2023. The DailyFX economic calendar below outlines the high impact data that could shape the markets perception for future rate hikes. While many are anticipating a slowing US economy, anything marginally resilient or pointing to elevated inflationary pressures may open the door for additional interest rate hikes.
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U.S. ECONOMIC CALENDAR
Source: DailyFX Economic Calendar
Today’s key earnings include:
Pre-market Open
- 3M Co (MMM)
- General Electric (GE)
- General Motors (GM)
- McDonald’s Corp (MCD)
- PepsiCo (PEP)
- Spotify Technology SA (SPOT)
- Verizon Communications (VZ)
After-market Close
- Alphabet Inc C (GOOG)
- Alphabet Inc A (GOOGL)
- Illumina (ILMN)
- Microsoft Corp (MSFT)
- Visa Inc Class A (V)
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TECHNICAL ANALYSIS
Introduction to Technical Analysis
Candlestick Patterns
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SPX DAILY CHART
Chart prepared by Warren Venketas, TradingView
The daily SPX index chart above shows a developing rising wedge chart pattern (black) since mid-March 2023. This coincides with a momentum reading hovering around the overbought zone as measured by the Relative Strength Index (RSI). From a technical standpoint, this is rather bearish and a daily candle close below wedge support could spark a move lower.
Resistance levels:
- 4200.00/ Rising wedge resistance
- 4169.48
Support levels:
- 4119.28/ Rising wedge support
- 4100.00
- 4069.84
BULLISH IG CLIENT SENTIMENT
IG Client Sentiment Data (IGCS) shows retail traders are currently SHORT on S&P 500, with 63% of traders currently holding short positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment resulting in a short-term upside bias.
NDX DAILY CHART
Chart prepared by Warren Venketas, TradingView
Price action on the daily NDX echoes similar sentiments to the SPX chart above in that the potential for a breakout this week is high. The rectangle pattern (green) looks ripe for breakout after consolidating for a few weeks. This will be highly dependent on the upcoming earnings and US economic data. A confirmation candle close above or below rectangle resistance/support could give an indication of the direction markets want to take the index short-term.
Resistance levels:
- 13204.08/Rectangle resistance
- 13000.00
Support levels:
- 12833.31/Rectangle support
- 50-day MA (yellow)
Contact and followWarrenon Twitter:@WVenketas
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