South Korean Exports Imply Slowing Earnings Growth

Stocks Rally Based On The End Of The Iran Deal?

The S&P 500 was up 0.97% on Wednesday. It’s interesting because the headlines claimed the market rallied because Trump exited the Iran deal. That’s a weird reason for the market to rally as it means more geopolitical uncertainty. I’m not necessarily willing to sell stocks because of this decision, but it wouldn’t make me buy stocks. It’s fair to see energy stocks rally 2.03% as the price of oil is up to $71.21. However, energy wasn’t the only sector rallying as this was a risk on day. The tech sector was up 1.37% and the financials were up 1.5%. On the geopolitical front, I’m actually beginning to feel calmer because Trump was able to negotiate getting 3 American detainees back from North Korea ahead of his meeting with Kim in the next few weeks.

Technicals Are Still Important

The point I’m getting at is the solid earnings season may be what pushed stocks up, rather than the end of the Iran deal. Extraneous headlines may be unable to hold the market down any longer. It’s interesting to see that the 10 year yield was up 2.8 basis points to 3%. Inflation increases with oil prices, so if oil increases, the 10 year yield will increase. I say it’s interesting because a few months ago the market was supposedly crashing because the 10 year yield hit 3%. I have been consistent in saying that all hell won’t break loose if it goes above 3%. There’s nothing magical about the 3% level.

I’m focused on this small movement in the S&P 500 because the market is at a critical technical level. The chart below is an updated version of the chart I’ve been looking at for the past few days. As you can see, the latest close pushes the S&P 500 above the trendline.

I’ll be convinced when the S&P 500 makes a new high. The chart below shows how you can change the angle of the trendline to make the current price below the resistance. The previous high was 2,709 which means a move of less than 1% will end this downtrend. I wouldn’t be surprised to see the energy sector outperform in the next year as this bull market comes to an end. So far, I’ve been wrong about oil because of this recent geopolitical stress. The market isn’t worried about the economic weakness in Europe like I am.

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