Stocks Survive Fed, How About Earnings?

Nasdaq 100 & Dow Jones Price Outlook:

  • The Nasdaq 100 and Dow Jones closed Wednesday slightly higher, but await key tech earnings
  • Facebook, Apple, Amazon and Google are set to report after the bell Thursday
  • Together, the stocks account for nearly 35% of the Nasdaq 100 and are crucial for risk appetite

Nasdaq 100, Dow Jones Forecast: Stocks Survive Fed, How About Earnings?

US equities fluctuated Wednesday afternoon amid Fed Chairman Jerome Powell’s press conference, only to round out the day with a strong finish as bullish equity investors rejoiced in the central bank’s willingness to provide further accommodation. While the policy and tone of the Fed may lead to further USD weakness, early equity price action may suggest some appetite for a continuation higher in the Dow Jones, Nasdaq 100 and S&P 500.

Earnings Calendar July 30

Source: Justin McQueen, Refinitiv, Bloomberg

That said, the market will be afforded little time to catch its breath as some of the most important tech stocks line up to report their earnings after Thursday’s close. Together, Apple, Amazon, Google and Facebook account for almost 35% of the entire Nasdaq 100 and have been some of the biggest gainers in the covid era. Thus, a strong showing may be crucial for a continuation higher for each of the US indices and, to a lesser extent, risk assets in general.

Nasdaq 100 Price Chart: Daily Time Frame (January 2020 – July 2020)

Nasdaq 100 price chart

Chart created in TradingView

Given their remarkable performances, market expectations have been lifted quite high for some of the FANGMAN members – and understandably so. Weeks and months of stellar gains would suggest each company will have to deliver an encouraging outlook for the future to justify present valuations, but some traders see symptoms of overextension.

Nasdaq 100, Dow Jones Forecast: Stocks Survive Fed, How About Earnings?

Source

In a poll I conducted late last week, respondents said Amazon appears the most over extended of the group, with Microsoft the least vulnerable. While the market can remain irrational for long stretches and the poll results are not a perfect indicator of valuation, we can use them as a sort of sentiment check for each corporation.

A Brief History of Major Financial Bubbles, Crises and Flash-Crashes

Thus, Amazon may be held to particularly high standards and could be most susceptible to a price pullback even in the event of a strong quarter. As we saw with Microsoft last week, a stellar quarter was largely overshadowed by Tesla earnings and resulted in a minor decline in share price, suggesting even a strong beat does not constitute a positive price reaction. In the days to follow, Microsoft has declined a total of -3.75%, a worrisome prospect for those yet to deliver and the entire Nasdaq.

Nasdaq 100 Price Chart: 4 – Hour Time Frame (April 2020 – July 2020)

nasdaq 100 price chart

To that end, traders should be cognizant of the major levels at play as a break beneath a line of crucial support could allow losses to accelerate or vice versa. Recent price action suggests a possible area of buoyancy may reside at the 10,300 to 10,180 range. On the other hand, a bullish extension beyond prior highs around 11,070 could be an encouraging development for further gains. In the meantime, follow @PeterHanksFX on Twitter for earnings updates and analysis as they arrive.

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–Written by Peter Hanks, Strategist for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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