European shares and futures on the S&P 500, Dow and NASDAQ 100 leaped forward this morning, suggesting U.S. indices are poised to wipe out yesterday’s losses and add gains as investors try to gauge the trajectory of the new earnings season.
The STOXX 600 edged higher with retail and chemical stocks, climbing for the fifth consecutive day to reach the highest level since Aug. 9. Technically, the index completed a falling-flag pattern—providing its closing price remains above the pattern.
In the earlier Asian session, local indices reversed yesterday’s regional pattern. China’s Shanghai Composite (+2.39%) and Hong Kong’s Hang Seng (+1.07%)—which completed a falling flag like the pan-European benchmark—outperformed Japan’s Nikkei 225 (+0.24%)—which still managed to hit to the highest since Dec. 3—and South Korea’s KOSPI (+0.26%). The latter index found resistance by yesterday’s shooting star, which reached the highest price since October.
On Monday, equities in the U.S. ended a three-day advance, after Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C) failed to hold onto gains that had been spurred by upbeat earnings results on Friday. While those strong reports had prompted hopeful speculation that this earnings season wouldn't be as bad as previously feared, banks earnings are particularly vulnerable in an environment where the Fed tries to fine-tune a consistent path to monetary policy amid ongoing uncertainty inflation dynamics.
The S&P 500 slipped 0.06%, getting further away from a six-month high, with all sectors but Consumer Staples (+0.59%), Health Care (+0.4%) and Consumer Discretionary (+0.2%) ending in the red. Financials shares (-0.63%) were the obvious fallers, with Citigroup stock dropping as much as 1.71% at the open. While the index managed to pare almost all the losses, short-term traders were stopped out.
The Dow Jones Industrial Average fell 0.1%, dragged down by a vicious sell off of Goldman Sachs (-3.8%) shares, which fared as the worst performer of the index. Muted volumes, highlighted by the languishing advance-decline line, underscored investors' lack of confidence in the latest rally.
Yields on 10-year Treasurys rebounded from an initial slump, after data showed China’s holdings of U.S. bonds increased for the third straight month. Technically, the 2.55 levels represent a key support-resistance level since the rebound that developed a symmetrical triangle in January—bearish for yields, as well as for equities, within the yield downtrend since November.
The dollar wavered after finding resistance at the top of a falling flag—bullish after the jump since mid March. Yesterday, and the day before, the USD found support at the pattern’s bottom. The price’s trading range is tightening, which means traders will soon release it from its pattern boundaries like a spring, as it is expected to breakout, with an upward bias.
WTI rebounded from an early slide over concerns of building U.S. stockpiles. Some analysts are looking at shale's "drilled but uncompleted" wells as a time bomb waiting to go off on OPEC supply cuts.Technically, the setback is generating a falling flag, bullish in the uptrend.
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