Major U.S. indices rally across the board last week

Look Ahead: Equities and Commodities

Look Ahead: Stocks

Prior to the first quarter reporting season, much was said about the strength of the U.S. dollar and the weather, among other things. But the results have so far been surprisingly good. After last week’s better-than-expected numbers from the banking sector, we heard some more good news this week from the likes of DuPont, IBM and Microsoft, among others. And although earnings from some household names such as Amazon, Google and McDonalds missed analysts’ expectations, their share prices nonetheless rallied as investors chose to focus on other metrics of their quarterly performance and forward guidance.

As a result of the positive results, the major U.S. indices rallied across the board this week, which saw the Nasdaq Composite index hit a fresh closing record high as it surpassed the peak of 5048 set in March 2000. The S&P 500 gained ground too, although it came just shy of hitting a fresh record before pulling back slightly. But should the earnings results continue their current good form, it could be just a matter of time before we see virgin territories for this index as well. Next week’s earnings include the likes of Apple on Monday; Twitter, Pfizer and Ford on Tuesday; Baidu on Wednesday; and ExxonMobil on Thursday.

As mentioned, the S&P 500 has now broken a bearish trend line that went back all the way to Feb. 25. Thus, if earnings continue to surprise to the upside then sooner or later the S&P may break higher and achieve a new record above 2120. What’s more, the momentum indicator, MACD, has now crossed above the signal line and is holding above zero. This suggests that the bearish momentum is fading, but the MACD has yet to break its own bearish trend line, which is needed to confirm the potential breakout above 2120 on the S&P 500.

If the S&P does break higher, the first couple of bullish targets would be the Fibonacci extension levels shown on the 4-HR chart. However, a potential break below the 2110 short-term support level may give rise to further follow-up technical selling and potentially pave the way for another test of the next logical support around 2070/5. But the pivotal level is lower still at 2040/2, which needs to be defended for the short-term upward trend to remain intact.

However, even if the S&P 500 goes on to break this level eventually, the long-term bullish trend would still remain intact for as long as it remains inside the bullish channel that goes back all the way to October 2010 (see the weekly chart). Meanwhile there are a couple of other long-term Fibonacci extension levels shown on the weekly chart around 2138 and 2147. These levels correspond with the 161.8% Fibonacci extension levels of the 2007-9 bear trend and the downswing from September to October 2014, respectively. Along with the extension levels on the 4-hour chart, these are among the bullish targets we will be watching should the index hit a fresh record next week. 

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About the Author

Senior Technical Analyst for FaradayResearch. Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, he creates research reports focusing on technical analysis of the forex, equity, and commodity markets.