Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst
Profit-taking set in last week, but the indices managed to finish mixed. Both the Nasdaq (-1.6%) and S&P 500 (-1%) lost ground, while the DJI managed to gain a paltry +0.3%.
However, my main concern at this point is the negative divergences in the Transportation Index (-1.8%) and the IWM ETF tracking the Russell 2000 (-1.45%). The failure of these indices to quickly rebound next week could prove ominous.
Technology stocks were down on the week but rebounded from Monday’s sharp sell-off, which was sparked by Chinese AI startup DeepSeek. The company’s AI model reportedly performs comparably to those of leading U.S. technology companies, despite being developed at a fraction of the cost and requiring less computing power.
The major U.S. stock indexes recorded positive results in January, regaining upward momentum after the S&P 500 and the Dow posted negative results in the final month of 2024.
In January, the Dow climbed more than 4%, the S&P 500 added nearly 3%, and the Nasdaq finished almost 2% higher.
For the quarter, S&P 500 earnings are on track to grow roughly 12%, which, if achieved, would be the strongest pace since 2021. Earnings growth is expected to be broad as well, with seven of the 11 sectors forecast to report higher earnings. Strong earnings momentum is expected to carry over into 2025.
It’s also notable that following the presidential election, markets have shifted gears, and a speculative frenzy has taken hold in areas such as crypto and lower-quality/unprofitable growth stocks—a sign that investor sentiment is becoming increasingly positive, if not one-sided.
The price of gold rose more than 1% for the week, eclipsing the precious metal’s previous record high set three months earlier. On Friday, gold was trading above the $2,800-per-ounce level for the first time, with an afternoon price of around $2,830. Twelve months ago, gold was trading slightly above $2,000.
Corporate earnings season ramped up last week, with four of the “Magnificent 7” companies reporting. Apple, Microsoft, and Meta delivered strong results, above estimates for both earnings per share and revenue, while Tesla missed on both measures. Despite disappointing results, Tesla shares traded higher on optimism over the favorable regulatory environment, new, more affordable models, and autonomous vehicles, including Robotaxi.
For the quarter, S&P 500 earnings are on track to increase about 12%, which, if achieved, would be the strongest pace since 2021.
Earnings growth is expected to be broad as well, with seven of the 11 sectors forecast to report higher earnings. Strong earnings momentum is expected to carry over into 2025. This trend could be a driving force for the extension of the bull phase, but there are plenty of concerns out there that could stall the rally, if not at least initiate a pullback/retest of sorts.
My concern is obvious when taking all of the factors into play, but we will always “Trade What We See Technically, Not What We Think,” and as a result, we’ll let the market action tell us what to do.
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