Commentary: Paul Ebeling on Wall Street

Commentary: Paul Ebeling on Wall Street

$DIA, $SPY, $QQQ, $RUTX, $VXX, $GLD, $XAU, $USO

Last Week

  1. Stock action has improved with low to high gains and the stocks that stumbled Wednesday have showed stronger action.
  2. There has been excellent action in response to good earnings both during the trading session and after-hours.
  3. Bonds rallied, gold has risen and Crude Oil has fallen, not always great economic signs.
  4. Despite mixed economic results, the market is still producing solid upside patterns.

Friday’s session was undecided from the premarket through mid-day. This is a similar course of action to how stocks have moved over the past week. Stocks started lower, bounced during the 1st hour and then faded back to the opening lows. This trajectory proved to be a double bottom.

The SPDR S&P 500 ETF Trust (SPY) showed a handle on that pattern by completing the cup with handle pattern by 1:00p EST. Then, SPY broke out and stocks moved higher into the close.

This did not produce big gains, but it did rally nicely off the session lows. This course of action also pushed the PHLX Semiconductor Sector (SOX) and the NAS to new all-time closing highs.

The S&P 500 did not quite make it and the DJIA struggled but left is in a good position.

The market returned to a more Bullish low to high action when compared to the Wednesday high to low trading pattern. This trajectory remained constant even with the spread of the coronavirus as well as more cases, deaths and a possible report of its appearance in a Texas county southeast of Houston.

Technical Analysis: Overall, we saw good intra-day action.

NASDAQ: We saw some action on most of the indices, then a reach to a lower intra-day period near the 10-Day EMA and then a rebound to a positive close. This was good shakeout action that, despite the long and sustained uptrend, shows that buyers are still buying. 

S&P 500: It tapped the 10-Day EMA on the low and then rebounded to a nice gainer on a good rise in volume to above average levels. The uptrend continues.

Watch this week

Growing fears over the scope of the coronavirus outbreak may keep global markets on edge, but closely watched tech earnings could shift investors’ attention away from the outbreak.

After last week’s less-than-great Quarterly report from Netflix, Apple, Amazon and Facebook set to report their results.

Both the Fed and the Bank of England will hold monetary policy meetings.

Below is what you need to know to start the market week.

Coronavirus outbreak

Market participants are keeping a eye on developments surrounding the coronavirus outbreak which has infected more than 2,000 people, the vast majority in China where 56 people have died. The virus has also spread to the US, Thailand, South Korea, Japan, Australia, France and Canada.

With stocks close to all-time highs again investors are fearful that the newly identified virus could develop into something worse, like the Y 2003 SARS epidemic.

Markets hate uncertainty and the virus has been enough to inject uncertainty in the markets.

The World Health Organization (WHO) is not calling the outbreak a global health emergency.

More FAANG results

While last week’s Q-4 earnings from Netflix (NASDAQ:NFLX) underwhelmed Wall Street, analyst hopes are still high for the other FAANGs: Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Google parent Alphabet (NASDAQ:GOOGL) ahead of their financial results for the Quarter.

The FAANG group of US tech stocks have been the biggest drivers of the Bull market, with recent gains among most of the group far outstripping the broader market.

Facebook is expected to post earnings growth of 6.2% when it reports on Wednesday, while Apple earnings on Tuesday are forecast to have grown 8.7%. Amazon has warned that increased investment in its package delivery business in the last Quarter will weigh on earnings, but it sees Quarterly revenues up 18.7% when it reports Thursday.

In comparison, the S&P 500’s Q-4 earnings are expected to decline 0.8% and revenue is seen rising 4.4%, according the latest estimates compiled by Refinitiv.

Fed meeting

The Fed will keep monetary policy on hold Wednesday

So, with no new forecasts being released at this meeting it will be the tone of Chairman Powell’s press conference and the actual vote that is likely to be of most interest for markets.

We expect to hear Chairman Powell retaining his cautiously upbeat language, particularly given the positive conclusion to US-China trade talks. He will reiterate that we will need to see a “material change” for the Fed to consider a policy shift.

Bank of England meeting

The BoE is to deliver its final monetary policy decision before Britain exits the EU on 31 January Thursday.

The Question is whether the BoE will join central bank peers in cutting interest rates. Economic growth and inflation took a hit from 3.5 yrs of BREXIT uncertainty so a recent string of weak data and comments by BoE officials that more economic stimulus might be needed saw rate cut expectations surge.

Economic data last week pointed to a post-election boost, leading markets to pare back expectations for a cut.

The future path of GBP, currently trading at around $1.31, in the middle of its trading range so far in Y 2020 hangs on the BoE’s decision and forecasts for whether the economy will find more momentum after BREXIT.

GDP figures

The US is to release advance Q-4 GDP figures Thursday, with analysts forecasting growth of 2.1%. President Trump will repeat his argument that if it were not for Fed policy tightening, growth would be closer to 4%.

The Eurozone is to release GDP data Friday, which is forecast to show the economy expanded 0.2% from the prior 3 months, backing up the ECB’s view of “ongoing, but moderate growth.”

Have a terrific week.

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