This week focus in the markets shines squarely on earnings reports as we move through the peak of earnings season while the economic and political calendar is relatively light. In particular, the technology sector may capture a lot of attention with Apple, Amazon.com, Google, Twitter and Tesla Motors all reporting results this week.
Since bottoming out in February, the US NDAQ 100 has been under accumulation advancing in a step pattern of rallies followed by consolidation at higher levels. For the last month, a consolidation phase has been underway between 4,740 and 4,900.
The index is currently testing the top of this range and at a potential turning point. Signals have been mixed with RSI breaking out of a downtrend to confirm momentum turning upward but other US indices like the Dow and S&P remain under distribution and unable to confirm an upturn.
A breakout would signal the start of a new upleg with next potential resistance on trend near the 5,000 round number then 5,160, a measured move from the current channel. A failure, however, would complete a triple top and signal upward momentum exhausted with initial correction support near 4,805 the 50-day average then 4,740 channel support.
For much of 2016, the NASDAQ 100 has underperformed the S&P 500 but in recent weeks this has started to change. Earnings reports may indicate whether the NASDAQ, which is more heavily weighted in technology and momentum stocks, could outperform the broader market in the coming months.
Expectations for NASDAQ component earnings are running high with the index trading at 24.4 times current earnings, higher than the 20.2 times earnings the S&P 500 is trading at currently. This indicates higher expectations for technology companies and the risk of higher volatility should momentum (results or guidance) fail to meet high expectations. This week may also indicate if traders are looking at current earnings for reasons to add long positions or for reasons to exit and take profits off the table.
Apple reports after US markets close on Tuesday, followed by Tesla late Wednesday, with Google (Alphabet), Amazon.com and Twitter all aftermarket on Thursday.
Traders should note that while CFDs on the individual company contracts closes at 4:00 pm EDT along with the markets, the NASDAQ 100 remains open and is often active when aftermarket earnings come out, providing you with a way to trade the initial reaction to technology earnings news.
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