Summary:
• The S&P 500 (SPX) sank 37 points last week to 2976, a decline of 1.2%.
• Based on market cycles, our projection is for weakness early this week and then stronger performance towards the end.
The stock market corrected last week as investors were less than enamored by initial earnings results.
While 79% of those S&P 500 companies that have reported earnings beat analyst expectations. Yet most achieved this only after having guided expectations lower. While it’s still early in the season, blended earnings growth actually equates to a decline of 1.9%, according to FactSet.
S&P 500 (SPX) Daily Chart
Our approach to technical analysis uses market cycles to project price action. Our analysis of the S&P 500 is for initial weakness and then a move higher as we transition into the rising phase of the next cycle. The SPX is now in a short term support zone of 2953-2986. Early this week we expect downside risk of about 25 points, with an outside chance of greater weakness.
Let’s also take a look at an individual stock that moved significantly last week. Up by nearly 5%, IBM Corporation (NYSE:IBM) was one exception to the earnings trend highlighted earlier. The company beat earnings and met revenue expectations while maintaining annual guidance.
IBM Corporation (IBM) Stock Weekly Chart
Based on its market cycles, IBM is still in the rising phase of the current cycle. Using Fibonacci analysis to identify a resistance zone, there is still a little more upside in the coming months. Note the smaller, minor cycles on the chart. It suggests there could be a shallow correction before the stock continues its move higher.
For a more detailed analysis of both of these charts, check out the latest episode of the askSlim Market Week show.