Last week, we saw quite a bit of choppiness largely due to worries over growth in China, along with some healthy profit taking from technically overbought levels. Alcoa started earnings season on a positive note, as did major US financials JP Morgan and Wells Fargo. Despite the decent start to the Q1 earnings season, the Dow and SPX both moved beneath their 50 day MAs for the first time since the winter rally began – although these indices remain well above their 200 day MA’s suggesting the larger trend is intact. Further, the move below the 50 day MA (blue line on chart) has been fairly tepid so far, as you will notice on this weeks chart of the S&P 500. The choppiness around the 50 day MA suggests that the market is looking for support around current levels.
My main focus will be on the viability of the trendline noted above. More than a couple of days below this indicator might spell further downside. If the trendline holds, there may be some more backing and filling as the market shakes off the last of its excess before the bull run continues. Something like 86 of the S&P 500 indices stock components report this week alone. That, along with a renewed level of focus on events in Europe will certainly test the markets’ ability to hold the line. All in, it will be an interesting week.
