Bulls Have Momentum, Hope To Cash In On Lowered 3Q19 Earnings Estimates

Major US equity indices are within striking distance of July highs. Sentiment took a small hit in recent weeks and has room to rise. How markets react to lowered 3Q19 earnings estimates will decide if bulls will be able to build on last week’s momentum.

 

In the last two weeks, bulls used weakness in the first half of the week to get long stocks. Last week, the S&P 500 large-cap index and the Nasdaq 100 index, and several other major US indices tried to rally on Monday but only to end the session down right on the 50-day moving average. Downward momentum continued on Tuesday.

Between Monday’s intraday high and Tuesday’s low, the Nasdaq 100 shed 2.3 percent (Chart 1). In the next three sessions, the loss was more than erased. By the end of Friday, it was up 1.2 percent for the week.

 

Over on the S&P 500, things evolved similarly. It, too, was down 2.3 percent between Monday’s high and Tuesday’s low, and it, too, recovered in the next three sessions to end the week up 0.6 percent.

In the process, the index (2970.27) reclaimed 2940s, which has proven to be an important price point going back to September last year (Chart 2). The Nasdaq 100 (7843.88) similarly reclaimed 7700-7750, which goes back to August last year.

Both these indices also were back above their respective 50-day. On both, the average is now flattish and is trying to curl up.

 

The Russell 2000 small cap index (1511.90) is right at the 50-day but below the 200-day. Other than that, it behaved similarly last week – weakness on Monday and Tuesday and strength in the remaining three sessions. By the time the week closed, it was up 0.8 percent.

Earlier – seven sessions ago, to be precise – small-cap bulls defended support at 1450s, which goes back to July 2017. This probably laid the foundation for the improved tone last week.

That said, bulls would have liked to finish the week on a stronger note. Friday, the indices finished strong, but bulls were unable to hang on to all the gains, resulting in a shooting star. The Nasdaq 100, in fact, got stopped right at trend-line resistance from the all-time high set in July this year (Chart 1).  Similarly, the Russell 2000 was rejected Friday at the 200-day (Chart 3). Near-term, the index faces short-term resistance at 1520s. A breakout, followed by reclaiming of the 200-day will strengthen bulls’ case. This potentially opens the door to a test of trend-line resistance from last August around 1570.

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