Stock Market Stuck Below Recent Highs

The U.S. stock market and its major indexes had a good week, however, macro economic data continues to be glum while earnings reports beat lowered expectations and technical resistance grows.

For the week, major stock market indexes like the S&P 500 (SPY) gained 1.7%, the Nasdaq Composite (QQQ) climbed 2.3% and the Dow Jones Industrial Average (DIA) added 1%.

All three major stock market indexes and their related ETFs remain below their recently recorded all time highs.

On My ETF Radar
In the chart of the S&P 500 (SPY) below, we can see how the stock market index is near overbought conditions with RSI at 66.79 and momentum is declining as MACD turns south. This sets up a divergence between momentum and the recent rally back to significant resistance levels and typically these divergences are resolved in one direction or other.

With major resistance at the 1600 level, just above current price, the most likely resolution is down as the S&P 500 (SPY) makes another stab at its all time high of 1593 set on April 11th. However, a sustained break above that level would likely trigger a further move higher as more money jumps aboard what will then look like an unstoppable train.

All three major stock market indexes are below their recent all time highs and find stiff resistance just above. Support for the S&P 500 (SPY) is found first at 1500, then at the 50 day moving average of 1439 and then 1400 where major support lies. Fibonacci retracement levels find support between 1530 and 1550 so the likely parameters for an initial correction fall between 5-12%.


ETF News You Can Really Use
Macro economic news remained dismal with 1Q GDP growing 2.5% and missing expectations while consumer sentiment fell on Friday with April’s reading of 76.4 being the lowest for the year so far and down from March’s 78.6.

March durable goods fell more than expected with a decline of 5.7% compared to last month’s +4.3% and expectations of -3.2%. Markit Flash PMI for April declined to 52, just above the 50 line that separates expansion from contraction and down from last month’s 54.6.

Earnings reports have mostly met or beaten drastically reduced expectations, however, current trends indicate that overall earnings growth for the quarter might post the first decline year over year since 2009.

Overseas, Purchasing Manager’s Indexes were also dismal with China barely holding above 50 and Germany and France leading Europe downwards with readings below 50.

In good news, weekly new unemployment claims declined and March new home sales were 417,000, missing expectations but up from the previous month’s 411,000.

Apple Computer (AAPL) continued making news with a tepid earnings report and downward guidance ahead. Warning signals come from declining profit margins, slowing revenue, no new products until autumn and increased pressure from Samsung which is taking market share in the hotly contested smart phone market.

On the earnings front, reports will be in full swing with high profile announcements from Facebook, Yelp, Visa, General Motors, Kraft and AIG, among others.

Next week brings a heavy flow of earnings and economic data.

On the economic front, Monday brings personal income, spending and new home sales.

Tuesday features Case/Shiller Home Price Index, consumer confidence and Chicago PMI.

Headliners Wednesday are the FOMC meeting announcement, April Institute of Supply Management, construction spending and ADP private employment.

Thursday brings weekly jobless claims and Friday is the grand finale for the week with April Non Farm Payrolls and Unemployment Rate, service sector ISM and factory orders.

Bottom line: Major U.S. stock market indexes will try to make new highs in the face of technical and fundamental headwinds. Central bank support and intent will continue to play a large role in this week’s price action along with the macro economic data picture culminating in Friday’s monthly payrolls report.

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