Banking Sector Stress Takes Center Stage

S&P 500, SPX, NASDAQ 100, and NDX – Outlook:

• And while the upside remains intact, US stocks haven’t broken their recent highs.
• The better-than-expected earnings provided a bottom line for the shares.
• What is the outlook for Standard & Poor’s 500 index f Nasdaq 100 pointers?

US stocks struggled to erase their recent highs even as the US Federal Reserve hinted at a pause in the hiking cycle. As earnings season draws to a close, banking concerns appear to be taking center stage, posing risk to the multi-week uptrend. However, on the technical charts, there are no signs of a bullish structure reversal.

As of Thursday, 417 of the 500 companies in the S&P 500 had reported first-quarter earnings, and the results beat expectations, providing a floor for stocks. So far, 69% of companies in the S&P 500 have reported surprise sales, while 78% have reported surprise earnings, according to Bloomberg data. The strong earnings season was overshadowed by mounting pressures on the banking sector.

PacWest Bancorp shares fell after it confirmed it was exploring strategic options, including selling. Western Alliance Bancorp fell sharply before recouping some losses after denying reports it was exploring a possible sale. And last week, troubled First Republic Bank was taken over by regulators and JPMorgan Chase agreed to buy the majority of its assets.

S&P 500 daily chart

Chart by Manish Gradi using TradingView

A potential fallout from problems in the financial sector is that banks will tighten credit, exacerbating the economic slowdown. As a result, the market now expects the Fed to cut by 75 basis points by the end of this year – a view that probably reflects financial conditions have tightened too much, too quickly, and that the Fed may have to reverse some of the tightening. .

For stock markets, the key question is to what extent the prices are tightening, which obviously can be deceptive. In this regard, the Fed’s quarterly loan officials survey on bank lending (due Monday) and CPI report (due Wednesday) will be closely watched. If these reports indicate that more price hikes are needed, stocks could start to feel the pain.

So far, on the technical charts, there are no signs of a bullish trend reversal, although the rally has stalled in recent weeks. For more discussion, see “S&P 500 and Nasdaq Weekly Forecast: Climbing the Wall of Worry,” posted on April 29.

S&P 500 daily chart

Chart by Manish Gradi using TradingView

Note: In the above color-coded chart, the blue candlesticks represent a bullish stage. Red candles represent a bearish phase. Gray candlesticks act as consolidation phases (during a bullish or bearish phase), but they sometimes tend to form at the end of a trend. Note: Candle colors are not predictive – they only indicate the current trend. In fact, the color of the candle can change in the next bar. False patterns can occur around the 200-period moving average, around support/resistance, and/or in a sideways/volatility market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.

S&P 500: approaching key support

From a trend perspective, the S&P 500’s bullish structure remains intact – first highlighted in January (see “S&P 500 and Nasdaq 100 Technical Outlook: Turning Bullish,” posted Jan. 28. More recently, the S&P 500 has failed to rally Towards the upper edge of the rising channel from the end of 2022 and the February high of 4195 can be interpreted as a sign of exhaustion.

The index is now testing immediate support at the end-April low of 4050. A break below that would trigger a minor double top (mid-April and early May peaks), opening the way towards the lower edge of the channel (now around 3925). Having said that, a break below the March low of 3809 would disrupt the higher-up-high-low sequence from the end of 2022, and as long as 4050 holds, the index could attempt to test the August high of 4325.

Nasdaq 100 daily chart

Chart by Manish Gradi using TradingView

Note: In the above color-coded chart, the blue candlesticks represent a bullish stage. Red candles represent a bearish phase. Gray candlesticks act as consolidation phases (during a bullish or bearish phase), but they sometimes tend to form at the end of a trend. Note: Candle colors are not predictive – they only indicate the current trend. In fact, the color of the candle can change in the next bar. False patterns can occur around the 200-period moving average, around support/resistance, and/or in a sideways/volatility market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.

NASDAQ 100: rally halted at key resistance

Likewise, the trend of the Nasdaq 100 was bullish. The index was flirting with key resistance at the early April high of 13205. As mentioned in the previous update, as long as the index remains above immediate support at the April 25 low of 12725, a retest of the August high of 13720 is likely.

Nasdaq 100 daily chart

Chart by Manish Gradi using TradingView

– Posted by Manish Grady, Strategist for DailyFX.com

Connect with Jaradi and follow her on Twitter: @JaradiManish