Stocks Rise as Earnings Surpass Expectations

The major U.S. indexes moved higher over the past week as first-quarter earnings estimates continue to surpass analyst expectations. According to FactSet, one-third of S&P 500 companies have beat mean earnings estimates, and 64% have beat mean sales estimates. New home sales swung 11.4% lower to an annualized rate of 569,000 and existing home sales fell 2.3% to a 5.57 million annualized rate, but long-term averages remain firmly in positive territory, and existing home prices remain strong with a 6% year over year gain to $244,800.

International markets were mixed over the past week. Japan’s Nikkei 225 rose 0.52%; Germany’s DAX 30 fell 0.29%; and, Britain’s FTSE 100 rose 0.7%. In Europe, the European Central Bank talked down the impact of the ‘Brexit’ on the Eurozone economy as economic activity hovered near a 6-year high. In Asia, Moody’s lowered China’s credit rating for the first time since 1989 citing concerns over rising debt. The rating was lowered by one notch to A1 from Aa3, putting in the same category as countries like Israel and Japan.

The S&P 500 SPDR (ARCA: SPY) rose 1.42% over the past week. After rebounding from its lower trend line support, the index rebounded past its R1 resistance at $240.90 to its upper trend line resistance. Traders should watch for a breakout to R2 resistance at $243.73 or a breakdown to the 50-day moving average at around $236.97. Looking at technical indicators, the RSI has moved closer to overbought levels at 63.56, while the MACD may have experienced a bullish crossover after a brief decline.

The Dow Jones Industrial Average SPDR (ARCA: DIA) rose 1.33% over the past week. After rebounding from lower trend line support, the index reached its upper trend line support and R1 resistance at $211.23. Traders should watch for a breakout to R2 resistance at $214.00 or a breakdown to the 50-day moving average and pivot point at $207.04. Looking at technical indicators, the RSI is approaching overbought levels at 62.90, but the MACD may have experienced a bullish crossover.

The PowerShares QQQ Trust (NASDAQ: QQQ) rose 2.45% over the past week, making it the best-performing major index. After rebounding from its lower trend line support, the index reached upper trend line resistance at around $142.00. Traders should watch for a breakout to new highs or a breakdown to R2 resistance at $140.20 on the downside. Looking at technical indicators, the RSI is overbought at 71.82 while the MACD may be experiencing a bullish crossover after a modest decline.

The iShares Russell 2000 Index ETF (ARCA: IWM) rose 1.12% over the past week, making it the worst-performing major index. After rebounding from lower trend line support, the index reached the pivot point at $138.18. Traders should watch for a breakout toward upper trend line resistance and R1 support at $142.70 or a move lower to lower trend line support and S1 support at $134.54. Looking at technical indicators, the RSI appears neutral at 50.35 while the MACD remains relatively flat over the past few sessions.

The Bottom Line

The major U.S. indexes moved higher over the past week, although several of them remain in overbought territory. Next week, traders will be closely watching several key economic events, including personal incomes on May 30, jobless claims on May 31, and employment data on June 2. Of course, investors will also be keeping a close eye on the evolving political situation in the United States and other countries.

Note: Charts courtesy of StockCharts.com. As of the time of writing, the author had no holdings in the securities mentioned.

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