As Q2 earnings season officially starts, we consider two SPX500 daily charts. The left shows the index slipping into its bearish area, between the lower blue and red bands. Moreover, its stochastic has rolled over as bearish momentum develops. If it drops below 20 and maintains (blue arrow), the SPX500 will be under pressure.
The chart on the right subscribes to a more classical approach. The SPX500 has broken down from a small symmetrical triangle (turquoise converging lines). Smaller patterns are generally continuation in nature. I.e., the breakdown sets up a continuation of the index's previous downtrend.
Earnings have started poorly, with both MS and JPM missing analyst forecasts. Moreover, in a sign of anticipated weakness, JPM has set up a $1.1bn provision for bad loans, and suspended share repurchases. Morgan Stanley CEO James Gorman said that equity and fixed income results offset weak investment banking activity.
The fragile start may be an omen for the SPX500, suggesting the start of an earnings trend. Given the index's charts, participants may be expecting as much.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.