Critical Week Ahead

critical Week

Earning reports kicked started the week with much anticipation. Those businesses reported so far were very encouraging, beating Wall Street’s expectation, but the markets did not buy into their positive earnings report and ended with flat market on last Friday market close for the week.

There were quite a number of theories explaining this market behavior right after the way market responded with good earning report. Instead of the respective stock going up with good earning, but went down, like what happened in Goldman Sachs.

One of the theories generated is that expectation of investors were higher than what they saw in those reports. What they saw in reality, those earning reports, though beating Wall Street estimate for both top and bottom lines, were disappointed because they were below their expected level. There is a market phenomenon called “buy in rumors but sell in news” really reflected here.

Critical Report Ahead

In the coming week, four of the tech giants called FAANG will be reporting their quarterly earnings (One of them~ Netflix has reported impressive quarterly earnings last week). Will their effects happen like Goldman Sachs or will they help resuscitate the bull? No one really knows, as there are various expectations and views among analysts.

This earning season is critical to determine whether the bull is still alive and able to charge up again.  Since corporate tax cut is already in place, most market watchers expect positive or rather big corporate earning starting from this period of time to push market indexes back on bullish course again.

Technical Observation

Technically speaking, according to S&P 500 Futures index, the bull was badly wounded after February correction. It needs a strong and impression corporate earnings to boost it back up again. Currently an obvious downtrend channel lines can be seen. (Chart A)

ES Down trend Pressure
Chart A ~Down Trending Channel is obviously being respected in S&P 500 Mini Futures

The last 2 days drops after some corporate earnings reported have showed their respect for the upper down trending resistance line.

Even if all the rest of corporate report coming in, they are able to give S&P 500 Future a lift, it has to breakthrough several resistance lines above, making higher heights in order to call it a bullish resurgence.  Failing to do that, after this earning season, market indexes are expected to resume their south journey.   The reason is, there will be no more stimulus for market hike but geopolitical tensions and trade war waiting ahead of us.  So the downside risk is more real than never before.

There are still various views about the current market direction. There are those lunatic views that the current bull has just been half way through, it can run up to 20 to 25 years starting from 2009. However the previous bullish Stanley Morgan is now suspecting the current market reflects the beginning of an end of the bull market.

Asian markets

Back nearer to home, greater China market has also fallen to a flat week. Not only threatened by Trump’s trade war tactic, but also his political spooks from behind using the Taiwan card, stepping on the Chinese’s nerve. Washington last month signed the Taiwan Travel Act, which will allow more official visits between the US and Taipei. It also agreed to help Taipei build its own submarines.

Taiwan Drill
Chinese Military Drill near Taiwan Waters caused market tumble last week

China conducted a series of military drill near Taiwan waters in order to stir up warning for Taiwan’s move towards independence. Geographical tension escalated which caused Asian markets tumbled early of the week.

With Trump’s imminent trade war with China, the 100 billion Chinese import tax hike is just waiting for a moment to release, China has once again reiterated a revenge response without hesitation. All this uncertainties have become a norm for current market volatility.

With all these backdrops looming, investors are advised to lower equity exposures whenever there is any window of opportunities. Investors should not be too complacent whenever they see markets running up. In fact, it can be possibly a rare window of escape.

When market opens on Monday, there will still be probably a weak start. The only reason why market can be lifted up again will be the extraordinary earning from large corporation, especially from the four FAANG brethren. Let’s keep watch and adjust our portfolio accordingly!

Happy learning!

 

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RISK WARNINGS

The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions.  All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed.  This write up does not constitute sole advice for investment decision. Readers and investors are advised to do further reading or research and make up individual investment decision.

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