U.S. Equity Rally Stalls after J.P. Morgan Reports Good Earnings
equity futures markets moved higher in pre-market trading after a lackluster
overnight trade, bolstered by news that earnings from J.P. Morgan exceeded
analyst estimates. The company reported a net profit per share of $1.09,
compared with the analystsâ€™ consensus forecast of 67 cents.
The company said that the gain was attributed to â€śsolid
performanceâ€ť in most of its business units and lower credit costs. Stock
futures gained ground on the news but upside movement may have been limited by
comments from CEO Jamie Dimon who said â€śAlthough we are gratified to see
consumer-lending net charge-offs and delinquencies decline, they remain at
extremely high levels and therefore returns in our consumer-lending businesses
are still unacceptable.â€ť
This morningâ€™s rally in the equity markets and the lack of
selling interest overnight is a strong sign that investors are still mainly
concerned about earnings rather than the economy. Late Wednesday, the Fed
reported that the pace of the economic recovery was slowing, forecasting
smaller than expected growth in the GDP and a sluggish jobs outlook. In
addition, the majority of policymakers on the Federal Open Market Committee
agreed that it may take up to 5 or 6 years before the economy reaches the Fedâ€™s
goal of maximum employment and low inflation.
The inflation outlook by the Fed suggests that the central
bank has the evidence to keep interest rates lower for a prolonged period of
time. With interest rates expected to remain low and corporate earnings beating
estimates, investor optimism is high, leading to strong buying interest in
The stronger Euro and British Pound is also contributing to
this morningâ€™s firmer tone, but the decline in higher risk currencies is
helping to limit equity markets gains. Based on this scenario, equity market
gains may be limited today as traders try to decide whether to satisfy their
appetite for risk or shift to a more risk averse sentiment.
With equity futures posting gains for seven consecutive
sessions, technical factors may also be signaling that the market is nearing a
short-term top and setting up for a near-term correction. Some oscillators are
indicating that conditions have reached overbought status, but pattern watchers
are waiting for a closing price reversal top to signal the start of a possible
2 to 3 day correction.
Technically, all three major futures indices are poised to
test major 50% levels today. Based on the main range of 1211.25 to 1002.75, the
September E-mini S&P 500 could run into selling pressure at 1107.00. The
September E-mini NASDAQ has an upside target at 1875.75. The September E-mini
Dow is already testing its 50% retracement level at 10323. Traders should watch
the reaction when these levels are tested to see if selling pressure is
detected. Intraday charts should offer the first clue as to whether the indices
are getting ready to top. The best signal to watch for is a closing price
reversal top on either the 60 minute or 15 minute charts.
Wednesdayâ€™s strong reversal to the upside in the September
Treasury Bonds was in reaction to the dovish outlook for the economy by the
Fed. Overnight this market followed through to the upside, but quickly fell
back to unchanged following the rally in the equity markets. At some point
today, stocks and T-Bonds are going to move opposite each other. If stocks
rally further, then expect a setback in the T-Bonds. If stocks falter and begin
to sell off, then assume this is a sign that investors are shifting their focus
to the economy, thereby renewing interest in the long side of the fixed income
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