S&P 500 Big Breakout Ahead, North Or South?

$SPY, $DXY, $OIL

The Q-2 Y 2015 US earnings season is winding down, the companies that make up the S&P 500 Index are posting a mixed performance, though not as bad as many analysts feared.

So far 452 (90%) of the 500 companies have reported, with 327 (72%) beating their earnings estimates, this is in-line with the 5-yr average (73%).

But, only 225 (50%) of the reporting companies have beat their top-line sales estimates, below the 5-yr historical rate of 57%.

The blended, meaning actual results from companies that have reported combined with estimated results for companies yet to report, earnings decline is -1.0% for the Quarter and the blended revenue decline is -3.3%.

If the coming results are as expected, the S&P 500 would see its 1st Y-Y decline in earnings since Y 2012 and its 1st consecutive decrease in revenue since Y 2009.

Declining earnings and revenue across 500 of the largest companies in the world’s largest economy is not good thing,but  many traders had feared worse, so the S&P 500 has been able to hold its ground around the Y 2100 mark in here (see chart below). Monday the S&P 500 finished +10.90 (0.52%) at 2,102.44.

There are 3 major themes driving the Q-2 results.

1. slowing growth in Asia. With growth in China, the world’s 2nd-largest economy, on track to dip below 7.0% for the 1st time since the Great Recession, many of the large multinational companies are seeing a notable dip in their sales to entire Asian-Pacific region.

2. the roughly 20% increase in the value of the .DXY relative to last year is hurting the sales of multinational companies that did not aggressively hedge their international exposure, and;

3. the big decline in Crude Oil from this frame in Y 2014 continues to damage the performance of energy companies, though the cheaper Crude Oil prices have benefited some manufacturers and consumer-oriented companies.

Notably, these 3 factors have not eased thus far in Q-3, and analysts expect aggregated declines in Y-Y revenues to extend throughout the rest of Y 2015.

A technical look at S&P 500 (NYSEArca:SPY)

Prices have been contained to a tight 100-pt trading range from 2040 up to 2140 for more than 6 months now, frustrating both the Bulls and the Bears.

There has been some deterioration under-the-surface in internal measures like breadth and sector rotation, but the index remains stable.

The daily RSI indicator is ranged between about 36 and 62.

Longer-term traders may want to wait for a conclusive breakout before committing to either new long or short trades.

A break above S&P 500 2140 accompanied by a breakout in the RSI indicator, indicates that the long-term uptrend has resumed for a possible move North toward 2200 or higher, and  a breakdown below 2040 and a corresponding drop in the RSI indicator may signal a retrace South toward the 1900 mark.

After finding a trading system that works for you, the more cryptic and esoteric fields of study can then be incorporated into your technical and trading toolbox.The bottom line when utilizing any type of analytical method,technical or otherwise, is to hold to the basics, which are methodologies with a proven track record over a long period.

Technical analysis is a method of forecasting price movements by looking at purely market-generated data. Price data from a particular market is most commonly the type of information analyzed by a technical trader.

Stay tuned…

HeffX-LTN

Paul Ebeling