Earnings Guidance will be Watched Closely

With Columbus Day today in the US and the US bond markets closed, many market participants have taken the day as a holiday. In addition, Canada is closed for Thanksgiving, Therefore, barring any dramatic tweets or headlines, this afternoon is likely to be a slow one for the US. However, it is the beginning of earnings season this week, and the most important number to watch for the markets will be earnings guidance. (For a preview of earnings season see HERE.) Earnings guidance is important for the markets because it tells us what companies, not outside analysts, think their future financial “numbers” will look like, including sales, spending, and economic outlook.

Banks are most likely to lower guidance due to unexpected lower interest rates (unexpected in a sense that at the last Fed meeting, members were discussing when to halt the “mid-cycle adjustment”). However, with most of the world in a global slowdown, earnings guidance from companies such as Boeing, Caterpillar, ExxonMobil, and Microsoft, will be heavily scrutinized. If earnings guidance is revised lower for many companies, it may pull stock indices lower.

The S&P 500 is trading less than 100 handles from its all-time highs. Despite putting in three higher days in a row, the index is currently trading an inside day and a doji candle, a sign of indecision. Technically, there is strong resistance above at the highs between 3020 and 3027. Below, there is a rising trendline near 2900, as well as, the rising 200 Day Moving Average just below. Price has been putting in higher highs and higher lows since August 6^th (hence the rising trendline). The price pattern appears to be an ascending triangle, and theoretically, should break out to the upside.

Source: Tradingview, City Index

However, IF earnings are guided lower, this may act as a catalyst to pull markets lower. And IF price breaks through the upward sloping trendline and the 200 Day Moving Average, the ascending triangle will be negated. On a weekly chart, we can see some of the downside targets that may be achieved:

Source: Tradingview, City Index

There is horizontal support near 2720. Below that, we must look at Fibonacci retracement levels from the low on December 24^th to the highs on July 29^th for support. The 50% retracement of the move is 2680 and the 61.% retracement is bear 2600. Next level of support is the lows of December 24^th at 2335.

Along with the obvious current themes of US-China trade wars and Brexit, earnings guidance must be watched as a catalyst for a move in stock indices. Just another thing to add to the radar, as traders need to be prepared for anything!!

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.