Yesterday morning, we made a case for the U.S. equity futures reaching a short-term top as the daily chart was nearing the first standard deviation higher, and in Wednesday’s session, that area of resistance was tested in the S&P 500 as price hit a barrier just below the big round 2600 level.
Overnight, the U.S. equity futures have turned lower as Asian markets were led down by the Nikkei’s 1.29% decline. At the time of this writing, all the European indices are trading lower.
Next week begins earning season for Q4 of 2018, and the potential of an economic slowdown, including residual effects of the current “trade wars,” could cause some companies to miss or lower forward guidance.
This type of bearish anticipation of earnings is nothing new, but it does give stocks a chance to take a breather after the recent rally to begin the year, and it provides an opportunity to show weakness going into mid-month ahead of earnings.
Today’s economic calendar included five Fed speakers including Fed Chair Powell’s remarks to come at 12:45 EST, which may be worth traders' attention. A couple of relevant economic numbers are on the calendar ahead of earnings, but we don’t expect that any scheduled data will overshadow this earnings season.
As we prepare for earnings, we will take a look at the four-hour candle E-mini S&P 500 (ES) chart below to see what is relevant over the next few days. First, to the upside, there is a minor upward trendline marked in black that is running into the grey shaded area which was support turned resistance. At the top of this grey zone is a red price line marked at 2631.87 which is the 50% retracement from last September’s all-time high to the December low.
This area creates a confluence of resistance which is part of what leads us to think there will be some profit-taking into earnings.
Next, to the downside, the orange trendline on this chart marks support from the December low to this current January low. This trendline is currently at 2532 We look for the ES to target this level in the next few days and we do expect to see some support on first touch.
Should this price break, the next target would be 2508.75, which is the 2018 close and could offer some support, followed by this year’s current low at 2438.50. We believe bulls really need to hold these levels; otherwise, they risk allowing the impressive rally mounted thus far since Christmas to turn into nothing more than a dead cat bounce leading to a new recent low.
- Jobless Claims 8:30 AM ET
- Tom Barkin Speaks 8:35 AM ET
- Wholesale Trade 10:00 AM ET
- EIA Natural Gas Report 10:30 AM ET
- 10-Yr TIPS Announcement 11:00 AM ET
- 4-Week Bill Auction 11:30 AM ET
- 8-Week Bill Auction 11:30 AM ET
- James Bullard Speaks 12:40 PM ET
- Jerome Powell Speaks 12:45 PM ET
- Charles Evans Speaks 1:00 PM ET
- 30-Yr Bond Auction 1:00 PM ET
- Neel Kashkari Speaks 1:20 PM ET
- Fed Balance Sheet 4:30 PM ET
- Money Supply 4:30 PM ET
- Richard Clarida Speaks 7:00 PM ET