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The Best of Both Worlds: Fundamental and Technical Analysis

April 17, 2017, 4:14 pm

The market reacted with uncertainty to a mixed bag of bank earnings last Thursday, initially showing some resilience before taking a more pronounced turn lower in the afternoon. While the earnings results mostly beat expectations thanks to strong investment banking, there were some signs of worsening consumer credit conditions – although from very low levels. Comments from management indicated that business conditions as well as the economy remain sound.

With the first-quarter earnings season officially underway, results will continue to run Wall Street for the next two weeks. This week will be dominated by more financial company reports, but it’s the following one that will be critical as tech and industrials release their numbers.

The S&P 500 appears to have come under a bit of pressure recently after falling through its 50-day moving average (the blue line), but I’m not overly concerned about the action. In fact, I suspect the index will drift in a range between 2,320 and 2,360 (the black lines) until the full-year earnings outlook becomes clearer. With interest rates still low and no indication that they’ll move higher in the near term, I think the earnings bar is set low enough that any downside in the broad market is limited.

S&P Chart

Also helping limit near-term downside are the financials and large-cap tech stocks. The Financial Select Sector SPDR ETF (XLF) is nearing a point of support, and the PowerShares QQQ ETF (QQQ) is holding above its 50-day moving average. As long as tech leadership remains intact, I suspect the overall market strength will be tough to fracture.

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