Earnings Surge Powers Stocks Higher But 12-Week Range Holds

Strong earnings results lifted the three major U.S. stock indexes to gains of 1% to nearly 2% last week, largely offsetting the previous week’s modest declines. Despite the rebound, the S&P 500 and the Nasdaq remained below the record levels they set over the past two months.

July marked the second slightly negative month in a row for the S&P 500, which slipped 0.1% for the month. The Nasdaq sustained a bigger decline of 3.2%.

Magnificent 7 Earnings Deliver Mixed Results

Four of the Magnificent 7 companies reported earnings with mixed market reactions. Microsoft and Amazon shares rallied following stronger cloud-computing revenue, while Meta’s stock moved lower as markets focused on an earnings miss and softer guidance amid elevated capital spending. Apple shares also declined as cost concerns and the company’s cautious outlook disappointed investors.

Overall, second-quarter results have been quite strong. More than halfway through earnings season, 86% of S&P 500 companies that have reported have beaten analyst estimates, with an average upside surprise of 31%. Earnings gains have also been broad-based, with 10 of the 11 sectors reporting year-over-year increases.

Concerns about long-term inflationary pressures pushed the yield of the 30-year U.S. Treasury above 5.20% on Wednesday, near its highest level since 2007. By Friday afternoon, the 30-year yield climbed further to 5.25% and the 10-year yield rose to 4.71%, the highest in more than a year and a half.

My Technical Read: Crossroads After 12 Weeks in a Range

The S&P 500 has now spent about 12 weeks in a high-level trading range. The key question is whether this is a bullish pause consolidating before the next leg higher, or a distribution phase before the indexes crack support and tumble to new pullback lows.

The underlying technicals, including the McClellan Oscillator, the VIX, and the percentage of stocks participating, are somewhat neutral and not giving distinct signals. The majority of pressure continues to come from Nasdaq AI and semiconductor leaders that saw parabolic gains in recent months and are now working off those extraordinary moves.

This has resulted in a nominal break of support on the Nasdaq that has not been confirmed by any S&P 500 break. Positive divergence? Or is the Nasdaq weakness signaling a potential spillover into the rest of the market that could trigger a broader capitulation? The next several sessions may yield important clues.

Key SPX Technical Levels to Watch

Support near 7,370 and 7,313. Below that, the 7,225-35 zone could be tested. A sharper break might reach 7,050. Resistance lies near 7,575-80 and the June 2nd all-time high at 7,620.

In any case, as we always do at TheTechTrader.com, we will “Trade What We See, Not What We Think.”