Source: PaxForex Premium Analytics Portal, Fundamental Insight
First-quarter earnings seasons will kick into high gear this week, with results so far mixed. Several financial companies reported solid results while the technology sector struggles as expected given the rising interest rate environment. Traders should brace for volatility over the next three weeks as most companies announce their financial results and offer guidance for the second quarter and 2022. Traders should pay attention to debt levels and cash reserves and consider forward guidance rather than focus on first-quarter revenues and earnings.
Companies and consumers face inflation not seen in over four decades, with many experiencing inflationary pressures for the first time in their life. First-quarter earnings season will provide more information on how companies pass on costs to consumers, fueling the inflationary cycle. The SP500 is likely to come under selling pressure as bearish fundamentals, including Covid-19 related lockdowns in China, continue to dominate. The supply chain faces bottlenecks, and commodity prices are elevated, adding costs and keeping inflation elevated.
Some central banks began their interest rate increases but are well behind the curve, while others maintain their easy monetary policy. The overall trend for borrowing costs remains to the upside, pressuring debt-dependent sectors like technology to the downside. Technology companies led financial markets higher over the past few years and are now accelerating the move to the downside. The SP500, a more balanced index compared to the NASDAQ100, faces downside pressures as the bear market is healthy. Traders should stay cautious with any move higher and consider them as selling opportunities, as the second quarter appears set for lower lows.
The forecast for the SP500 remains bearish after this index was unable to sustain its bear market rally that briefly took it above its Ichimoku Kinko Hyo Cloud before collapsing. Adding to downside pressures is the descending Tenkan-sen, which is on course for a bearish crossover below the flat Kijun-sen. Traders should monitor the CCI following its breakout of extreme oversold territory from where a moderate move higher is likely to result in more downside. Can bears maintain pressure and force the SP500 into its horizontal support area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
SP500Should price action for the SP500 Index remain inside the or breakdown below the 4,360 to 4,445 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 4.400
- Take Profit Zone: 4.105 – 4.160
- Stop Loss Level: 4.520
SP500Should price action for the SP500 Index breakout above 4,445, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 4.520
- Take Profit Zone: 4.635 – 4.705
- Stop Loss Level: 4.445
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