S&P 500 Faces Earnings Check, Hang Seng Index May Rise

S&P 500, HANG SENG INDEX, CRUDE OIL PRICE OUTLOOK:

• S&P 500 index futures climbed 1.05% to 3,185, challenging a key resistance
• Hang Seng index aims to follow the US higher, trading at 25,900 pre-market
• WTI crude oil prices re-test US$ 40.0 resistance. Will they break it or fail?

S&P 500 Index Outlook:

US markets shrugged off climbing virus cases around the globe and closed firmly higher last Friday. Asia-Pacific equities will likely follow and open higher, according to futures markets. The covid-19 pandemic showed no sign of fading any time soon, with Florida reporting a record daily increase in cases and a second viral wave seemingly sweeping the globe. Hong Kong has decided to shut all schools as community cases surge, and Australia’s second biggest city – Melbourne – is back to lockdown.

Earnings season is around the corner. Bank of America, BlackRock, Citigroup, Delta Airlines, Goldman Sachs, JPMorgan, Johnson & Johnson, Morgan Stanley, Netflix and Wells Fargo are among the key corporates to deliver their second quarter results this week. In the next three weeks, nearly 70% of the S&P 500 components will release their earnings, bringing to the market a ‘reality check’ in light of a sharp contraction.

All eleven sectors are seeing their earnings decline in Q2, with energy (-149.9%), consumer discretionary (-118.9%), industrials (-88.9%) and financials (-55.2%) among the hardest hit, according to Factset.

FAANG – which represents the largest US technology firms– has outperformed the S&P 500 index this year. Nasdaq has also outperformed Dow Jones and S&P 500 year-to-date with a 4.01% gain. The coronavirus pandemic has changed consumers’ behavior deeply, with more people shifting to e-commerce, streaming, video-conference, gaming and other digital services. This has underpinned technology firms’ revenue at the expense of brick-and-mortar businesses.

Source: Bloomberg, DailyFX

S&P 500 Index –Technical Analysis

The index is re-challenging a strong resistance at 3,200, which it failed to break in early June and has subsequently entered into consolidation. The index is riding an uptrend which is highlighted by the Ascending Channel below. Overall momentum remains bullish in the near term. A firm break above 3,200 will likely open room for more upside towards 3,360 – the 200% Fibonacci extension.

S&P 500 Index – Daily Chart

Hang Seng Index Outlook:

Hong Kong’s Hang Seng Index (HSI) stock market benchmark was in consolidation for most of last week, falling from 26,910 the highest to 25,539 the lowest. The index aims to follow the US higher on Monday, rebounding to 25,900 in the pre-market.

The Hang Seng Index is also influenced by the mainland China stock markets, which have also consolidated last week. The lack of fundamental support behind recent stock market rally rendered the indices vulnerable to technical pullbacks.

Technically, the Hang Seng Index is consolidating at around 25,600, with immediate support and resistance levels found at 25,000 and 26,00 respectively.

Hang Seng Index – Daily Chart

Crude Oil Price Outlook:

Technically, WTI crude oil price is forming an ‘ascending triangle’ since end of May. The upper bound of the ‘ascending triangle’ coincides with a strong resistance at US$ 40.0, which is the ceiling of a ‘gap down’ resulted in early March. If crude oil price could firmly break out US$ 40.0 it will likely open room for more upside towards US$ 43.2 (61.8% Fibonacci retracement) and then US$ 51.7 (76.4% Fibonacci retracement).

WTI Crude Oil– Daily Chart

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— Written by Margaret Yang, Strategist for DailyFX.com

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