S&P 500 - Stable Despite Missed Earnings Expectations

by: Dean Popplewell

By Mingze Wu

US stocks fell yesterday following disappointing earnings from a few big names such as Citigroup (NYSE:C) and Best Buy (NYSE:BBY), pulling S&P 500 from its latest record close 2.5 points lower. This bearishness is highlighted when the better than expected Initial Jobless Claims failed to trigger any bullish response yesterday, which leads one to wonder if stock prices would have been lower if not for the bullish economic number.

Hourly Chart

Then again, it should be noted that prices have been relatively stable when US stock market was opened. The majority of yesterday's losses actually occurred during Asian and European hours where futures have traded lower ever since Wednesday's US session closed. Interestingly, futures prices started to climb lower quickly when US stock market closed at 4pm EST. This suggests that US traders are actually remaining rather calm and that the lower earnings actually did not drive stocks lower, and the previous assertion may need to be revised.

That doesn't mean that the bearish pressure in S&P 500 is lifted, for global risk-off trends have proved to have a strong impact on US stock prices. Also, from a technical perspective, prices have traded below the 1,845 and rising trendline, opening a move towards 1,831 support. Stochastic readings also favor continued bearish movement as Stoch curve has reversed underneath the 60.0 level where previous peaks were seen on Monday.

On a separate note, bulls should be relief that sentiment of US traders remain bullish for now. However, should more earnings disappointment pile up as earning seasons continue, it is likely that the bullish resolve of US traders will be broken and we could see sharper bearish pullbacks if global risk trends remain bearish.

Daily Chart

Daily Chart agrees with this outlook, with a lower bearish target around 1,815 and the rising channel top as another possible target. Stochastic readings are still pointing higher though, and a break of 1,850 cannot be ruled out entirely. Nonetheless, with readings close to oversold region, the likelihood of further bullish push is lower given the bearish global risk trends. Hence, a bearish pullback is more likely, but we will need further confirmation; e.g. Stoch reversing and push below 60.0. Should this happen, it is likely that price would have been below 1,831, and further bearish acceleration can be expected in the short-run.

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