Can Key Support Lines Hold?

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On Wednesday, the Federal Reserve’s two-day meeting ended with a non-statement on the timing of an interest rate increase. However, this lack of guidance was viewed as a positive and helped offset the earlier negative impact of the Q1 GDP report, which revealed very slow growth.

The Commerce Department said the U.S. economy grew at a mere 0.2%, which was significantly below economists’ estimate of 1% and a dramatic shift downward from the previous quarter’s 2.2% growth. Since the Fed has stated the timing of a rate hike is linked to 2% inflation and there is practically none, its statement attracted buyers and stocks rallied into the close.

Earnings reports were mixed. With 277 companies of the S&P 500 having reported Q1 results, FactSet said earnings are projected to decrease 1.7% for the biggest year-over-year decline since Q3 2009.

Countercyclical stocks did no better than their more aggressive counterparts with Consumer Staples Select Sect. SPDR (ETF) (NYSEARCA:XLP) and Health Care SPDR (ETF) (NYSEARCA:XLV) both off 0.9%. But biotechnology stocks rallied for a modest gain, with the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) up 0.1%.

salesforce.com, inc. (NYSE:CRM) gained after a news report said its management is entertaining potential offers for the company. Norfolk Southern Corp. (NYSE:NSC) fell 1.1% on a drop in quarterly profits. Akamai Technologies, Inc. (NASDAQ:AKAM) lost 1.2% following an earnings miss. And Twitter Inc (NYSE:TWTR) plummeted 8.9% following Tuesday’s leak of disappointing earnings.

All of the S&P 500’s sectors registered losses except energy stocks, with the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) up 0.7%. WTI oil rose 2.6% to $58.52 a barrel.

The U.S. dollar started weak but rallied late in the day and closed higher against the euro, which closed at $1.11, down from $1.12 on Tuesday. Gold fell 0.3% to $1,210 an ounce.

At Wednesday’s close, the Dow Jones Industrial Average was down 75 points at 18,036, the S&P 500 fell 8 points at 2,107, the Nasdaq dropped 32 points to 5,024, and the Russell 2000 lost 12 points at 1,247.

The NYSE traded total volume of 4.1 billion shares, and the Nasdaq crossed 1.9 billion. On both major exchanges, decliners outpaced advancers by about 2-to-1.

SPY Chart
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Chart Key

The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) shows higher volume on down days than up days. Its MACD is fading and is now at the lowest level of the second half of April.

SPY closed below its 50-day moving average by a fraction. Immediate support is at this line. If SPY can recover and close above its 50-day, it would be a near-term victory. But if the support line at $209 gives way, a quick test of $205 could occur.

IWM Chart
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The iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) is in no better shape than SPY. It has failed to penetrate the April high above $127, and on Tuesday, it fell under its 50-day moving average at $123.96 by a fraction.

MACD is now on a clear sell signal, and the next test for IWM is the trendline and Tuesday’s low at $123.25.

Conclusion

At some point, and it may be now, stocks will react to earnings rather than the Fed since it is a foregone conclusion that the Fed can’t and won’t support the market indefinitely. Wednesday’s earnings reports and FactSet’s estimates don’t support an intermediate-term bull move.

A crack of the current support lines on SPY and IWM would likely lead to a test of their 200-day moving averages. My guess is that if that were to occur the ETFs would suffer a modest penetration, like that of October’s.

The bull market is still alive, but it may be suffering from pre-summer doldrums. Analysts are again touting the phrase “sell in May and go away.”

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2015/04/daily-market-outlook-can-key-support-lines-hold/.

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