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Technical Analysis: Earnings season to play a big role in market direction

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We reflect on the week that was and where the US equity markets stole the show, with new highs in the S&P500, and the Nasdaq100 outperforming all major equity markets.

Tech sector lifting US equity markets

Artificial Intelligence names went on a tear on Friday, where notably Nvidia NASDAQ:NVDA, Broadcom NASDAQ:AVGO and AMD NASDAQ:AMD felt the love. With 16% of the S&P500 market cap reporting this week, earnings and corporate outlooks will play a greater role in the price action. It is hard to be short these markets given the upbeat flow but it’s hard to chase as well.

Tesla NASDAQ:TSLA and Netflix NASDAQ:NFLX will be the trader favourites this week, with the options markets implying moves (on the day of reporting) of -/+ 5.4% and 7.5% respectively. Tesla needs to pull something out of the bag to turn sentiment around and we see price having lost 20% in the past 14 days. Netflix comes off the back of a 16.1% rally on the day of reporting Q323 numbers, so longs will be hoping for something similar, to take price above $500. A daily close below the 50-day MA and I’d be exiting longs.


Interest rates continue to dominate sentiment

Conversely, the HK50 and CHINAH were savaged by over 5% and shorts continue to be the play, although a surprise cut to the 1 & 5-year Prime Rate would cause a decent reversal higher.

Pushback from several central bankers on the start point and extent of rate cuts (priced into swaps markets) caused front-end bond yields to move higher last week, with the market reevaluating whether March is indeed the start date for many central banks to start a cutting cycle. In the case of the Fed, the implied probability has fallen to 50%, and this pricing should hold firm until we see core PCE print later in the week. The USD holds a fair relationship with the evolving implied pricing for a March Fed cut, where rate cut probability falls the USD rallies (and vice versa).

The USD was the best performing G10 currency last week but with the European Central Bank (ECB) meeting in play this week, there are reasons to think EURUSD could push back into the 1.0950/70 area. The NZD gets close attention given the Q4 CPI print due and we’re seeing signs of diverging paths between the Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) in market pricing. We are looking for NZDUSD shorts on a momentum move through 0.6100 and AUDNZD longs at current spot levels, adding on a close through the 200-day MA.

Commodities: Gold, Natural Gas and Crude Oil

The flow and set-up in Gold is a little messy and the price is chopping about. There is no real directional bias in the near term and I would look at selling rallies on the week into $2055 and buying dips into $2000.

While Natural Gas is getting good attention given the price is in freefall, Crude Oil is also on the radar with rallies recently sold into $75.20 and dips bought at $70. A break on either side of that range could be meaningful.

Politics also comes into focus this week with the New Hampshire REP primary held on Tuesday. It won’t be a market event but could pull Trump one step closer to becoming the Republican nominee, a fate most fully expect.

Chris Weston looks at the week ahead for financial markets

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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