With Outsize Influence On S&P 500 And Nasdaq 100, Top Six Get Ready To Report

With subtle signs of distribution hitting major equity indices in recent sessions, results from the top six US companies – all tech – could not have come at a more important juncture.

The 1Q21 earnings season is one fourth through. Profits have come in stronger than expected. Since companies began reporting in earnest two weeks ago, blended estimates have gone up in all three categories: small-, mid- and large-caps.

As of the 8th this month, S&P 500 companies were expected to earn $39.31 in operations, S&P 400 $27.85 and S&P 600 $12.05. As of last Thursday, estimates had risen to $42.28, $29.19 and $12.76, in that order (Chart 1).

In fact, the revision trend improved as 2021 began. At the end of 2020, these estimates were $37.04, $25.88 and $11.36.

Stocks rallied massively into earnings and are beginning to stall as the reporting season got underway. Just in the first quarter, the S&P 500 rallied 5.8 percent, the S&P 400 13.1 percent and the S&P 600 17.9 percent. With five sessions to go this month, the S&P 500 and 400 are up another 5.2 percent each and the S&P 600 2.3 percent.

Sellers are beginning to show up. Through Tuesday’s low last week, the S&P 500 was down 1.6 percent, the S&P 400 2.6 percent and the S&P 600 4.1 percent; but by Friday, the S&P 500 rallied enough to end the week down only 0.1 percent, while the S&P 400 and 600 were up 0.9 percent 0.2 percent respectively. As a result, all these three indices produced weekly candles with long lower shadows.

The S&P 500’s dragonfly doji indicates that the bulls were able to soak up the early selling but at the same time suggests a potential reversal in the making. It can be a bearish candle but needs confirmation. The rising trend line from the low of last March is intact, but barely. Last Tuesday’s low just about kissed that support (Chart 2).

This week is key. Several tech bigwigs report their March quarter.

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