The US indices hit the wall with Tesla and Amazon at the forefront

The US indices hit the wall with Tesla and Amazon at the forefront

5. maj 2020Læsetid: 5 minutter

The S&P500 index has reached the 61.8 percent Fibonacci line from the bottom level created after the historically steep fall. The month, from the March 23rd lows now goes to history as the strongest rise ever by 34 percent. Now that the S&P500 reached 61.8 percent, the index has also reached the upper limit of a technical bounce.

If the stock exchange succeeds in getting new energy from some event like a new vaccine or other, this level can be broken and then we can expect a new all-time high. More likely is that the stock exchanges consolidate for a while. One should be extremely responsive to the creation of a new lower peak, which can cause further decline.

Below is the daily graph for S&P 500. Note how the index closed Friday’s trading below EMA9. Also note how the upwards movement of EMA9 is fading, indicating that momentum is weakening. The next level on the downside can be found around 2 791 where a rising MA20 and Fib 50 meet up. After that, the 2738-level serves as second support followed by Fib 38.2 around 2 650:

Before the Corona-crisis, the Fed and Trump have jointly lifted the stock market indices to the nearest unimagined heights. The Corona-crisis has now put a stop to Trump’s success story and indices fell into a tailspin. Were it not for the massive efforts done by the Fed and other central banks, we would not have seen this gigantic bounce back up.

Below is the monthly graph for S&P 500. As shown, April was a strong month and took the index back up to previous levels that were driven by the “Trump effect”. The last red candle is the start of May:

US GDP has risen by 2-3 percent a year in recent years (blue line) but is now falling steeply down to minus 16 percent according to GDPNow. Below shows GDP along with S&P 500:

As shown, the fall in GDP is not reflected in the S&P500 index which remains at the same levels as was noted in 2018. This is the result of two things: (i) a gigantic support and (ii) a widespread belief that when the virus blows by, everything will return to normal. In several previous weekly letters, we have questioned both these factors as long-term and reasonable. But as an investor, one must also accept that your own opinions mean little when the market lives its own life.

Now the Q1 2020 reports have come in for the US banks and tech companies, which is usually the period that provides the most positive news for the market.

With just over half of the S&P companies now having released their Q1 2020 reports, 67 percent reported profits better than expected. Thus, business as usual, though surprisingly strong given the situation. However, both for the GDP figure released for Q1 2020 and for the quarterly company results, it must be borne in mind that it was only the last two weeks of the quarter that was severely affected by the Coronavirus and the shutdown in the United States. The big effects are likely to come in Q2 2020 and it is these corporate reports that now will roll in. We will see how the market reacts when the complexion of the determination´s healthy skin in the afterthought´s sick paleness goes over.

Looking at the overall figure for the US tech-sector in the table above, 84 percent of the 38 tech companies that have released its Q1 2020-report has reported stronger sales than expected. 71 percent of the companies have reported profits better than anticipated. However, tech heavy Nasdaq index fell on Friday and closed its trading below EMA9 and the rising trend line. Note how MACD is getting close to generate a weak sell signal:

Fib 61.8 as well as MA100 has converged and serves as a first level of support on the downside between 8 620 and 8 607. A rising MA20 function as a second support around 8 539 that must hold for the short trend to remain in a rising-mode.

Amazon reported revenues above expectations but missed on profit due to increasing costs in the supply chain related to Covid-19. The share also fell on Friday to close slightly above a support made up by Fib 23.6 and MA20. Note how MACD has generated a weak sell signal:

A break below MA20 and the next level on the downside can be found around 2 175 USD.

Tesla once again reported profits above expectation but sales lower than expected. Focus is now on when production can be back up. The share also fell on Friday but is facing support made up by a rising MA20 and Fib 38.2:

The next level on the downside is a falling MA50 around 632 USD and Fib 50 around 610 USD.

Swedish OMXS30 index is in a better mood but still lagging the US indices Nevertheless, OMXS30 did not manage to establish itself above Fib 50 as the index fell on Friday:

However, momentum is positive and rising illustrated by a rising EMA9 and MACD. The next level on the upside can be found at Fib 61.8 around 1 660 where MA200 also meet up. On the downside, a rising EMA9 serves as a first level of support.

Fib 50 remains to be broken for the German DAX index as well. Momentum is stronger on the European stock exchanges than in New York. It applies for OMXS30 but also for the German DAX. In case of an upward brake Fib 50 and Fib 61.8 comes into play:

A rising EMA9 function as a first level of support on the downside.

Bitcoin has gained momentum as USD is getting weaker. Bitcoin is now getting close to resistance around 9 170. A break above and the previous local top from February can be put in play:

A rising EMA9 around 8 400 serves as first level of support on the downside.

Brent oil tried to break up above MA20 but failed and instead, a scary doji was created:

Note that momentum is getting stronger but is still in negative territory as illustrated by MACD.A break up above MA20 and Fib 23.6 is next, followed by a falling MA50 around 33 USD per barrel. On the downside, a rising EMA9 serves as support.


Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

31-10-2020 13:32:30


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