What's up with the American Stock Market
The American Stock Market is the largest market in the world (NYSE) with over 2400 listed companies including blue-chip stocks and index funds etc. Index funds are used to track the performance of the whole market, these include the Standard&Poor 500 which includes 500 of the largest companies listed on the NASDAQ (including Apple, Tesla, Google etc) and the Dow Jones Industrial Average (^DJI; $INDU.DJI; DJIA) which contains the 30 largest companies listed on stock exchanges in America. These are the most popular indexes used and investors perform technical and fundamental analyses on these indexes to predict the outcome of the markets.
What is Fundamental Analysis?
Fundamental analysis is a technique for determining an asset's inherent value and examining the factors that may impact its price in the future. External events and effects, as well as financial statements and industry trends, are used in this type of study. Investors who use fundamental analysis will look at anything that can influence the security's value, from macroeconomic factors like the state of the economy and industry conditions to microeconomic elements like the company's management effectiveness.
The ultimate goal is to arrive at a number that can be compared to the present price of a security to determine whether it is undervalued or overvalued.
What is Technical Analysis?
Technical Analysis involves studying the past market data including price and volume. Investors may tend to use psychology, behavioural economics and quantitative analysis etc to predict future market outcomes. Technical analysis heavily relies on reading stock charts and use specific indicators and signals to predict the market movements.
The majority of technical analysis is concerned with identifying whether a current trend will continue and, if not when it will reverse. Trendlines are preferred by certain technical analysts, while candlestick forms are preferred by others, and bands and boxes generated by mathematical visualization are preferred by others.
To identify probable entry and exit points for trades, most technical analysts employ a combination of instruments. For a short seller, a chart pattern may signal an entry point, but the trader will check moving averages for different time periods to confirm that a breakdown is imminent.
Technical Analysis of S&P 500 (12/04/22)
Indicators used:
- Exponential Moving Average 21 (EMA 21) - a type of moving average that places a greater weight and significance on the most recent price points. It places a 9.0% weight on the most recent price
- Simple Moving Average (SMA 5) - calculates the average of a selected range of prices, usually closing prices, by the number of periods in that range
We can see that there is a bearish trend going on and the indicators used (EMA 21 & SMA 5) remain in the “danger zone”. Nothing will change if it continues to make lower highs and lows, and the SPX will simply seek its next support levels. The 4,456 served as a support level at least three times recently, as demonstrated by the red circles, and it now serves as a resistance level. Furthermore, the EMA 21 is another level of resistance that has held the market, indicating that the short-term trend is bearish.
Yesterday, the 21 EMA, coupled with resistance around 4,456, did a good job of maintaining the price, as predicted yesterday (11/04/22):
Now we find ourselves in a similar situation. We still have the 21 ema, which appears to be operating as a resistance today, despite the lack of a visible resistance. However, investors continue to believe that the 4,456 level is the more crucial barrier to overcome. If we can break through these resistances, the index will finally have a chance to reverse, and we may be able to close the gap at 4,481.
Fundamental Analysis of S&P 500(12/04/22)
Analysis of JP Morgan and Delta Airlines specifically
JP Morgan Chase&Co started off with a 42 per cent reduction in quarterly profit, the first-quarter earnings season got off to a bad start. The biggest US lender's stock dropped 3.2 per cent as a result of its disappointing earnings.
Delta Air Lines' results are above forecasts, and the company forecasted a current-quarter return to profit due to "historically high" demand. According to Reuters, the 5.9% share price increase spread to the larger S&P 1500 airline index, which rose 6.5 per cent.
Some important points (14/04/2022)-
● The McClellan 1-Day OB/OS oscillators are neutral on all (All Exchange: -2.87 NYSE: +0.59 NASDAQ: -4.13).
● The % of SPX issues trading above their 50 DMAs (contrarian indicator) rose to 54%, remaining neutral.
● The Open Insider Buy/Sell Ratio also rose to 56.5 but also remains neutral.
● The detrended Rydex Ratio (contrarian indicator) dipped to +0.03, also staying neutral versus its prior bullish implications near the March lows.
● This week’s AAII Bear/Bull Ratio (contrarian indicator) slipped to 1.17 as the crowd became a bit less cautious, leaving its forecast as bullish. Meanwhile, the Investors Intelligence Bear/Bull Ratio (contrary indicator) is now 31.0/39.1, remaining very bullish.
● The forward 12-month consensus earnings estimate from Bloomberg for the SPX lifted to $235.22. As such, the SPX forward multiple stands at 18.9 with the “rule of 20” finding ballpark fair value at 17.3.
● The SPX forward earnings yield is now 5.29%.
● The 10-year Treasury yield closed lower at 2.69. We view resistance as 2.88% while it is far enough back on the charts that it may not be very effective. Support is 2.41%.1[1]
Overall, As of now, the SPX has been seeing a correction, but it is very probable to say this correction would eventually lead to a recession, as the fundamental and technical analysis proves the latter, the main rule being growth is a process, with ups and downs, absolute growth is never possible. As expected, S&P 500 would need to crash to at least the 3900-3500 zone, if not more, to yield a positive growth perspective; that’s just the best outlook, or the positive outlook, it can turn even worse
[1] Ortmann, Guy S. “Does The Recent Rally Signal The Correction Is Complete? Indexes Won't Commit.” Investing.com, 14 04 2022, https://www.investing.com/analysis/does-the-recent-rally-signal-the-correction-is-complete-indexes-wont-commit-200622216. Accessed 14 04 2022
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