Stocks cautiously attempted to maintain recent bullish momentum on Wednesday as corporate earnings early in the reporting season continued to show mostly better-than-expected results.
While geopolitical risks remain, market perceptions of the severity of those risks have tentatively declined. Trade war tensions between the US and China have quieted down, the political fallout between the US and Russia over recent strikes on Syria has been relatively minimal, and North Korea has begun to show a strong willingness to negotiate with South Korea, China and the U.S.
On Wednesday, reports surfaced that the U.S. is looking to reach an agreement on NAFTA re-negotiations with Canada and Mexico within three weeks. Also on Wednesday, a key Federal Reserve report indicated continuing US economic growth that may already have begun to benefit from December’s US tax reform legislation, even despite stated concerns about President Trump’s intensifying tariff policies. Partly as a result of all these developments, somewhat calmer markets have tentatively begun to prevail, lifting some pressure off equities and subduing market volatility for the time being.
From a technical perspective, while significant damage was done to the S&P 500 during the early-February correction and then the subsequent plunge in mid-to-late March, the benchmark stock index has generally been on a sharp rally since early April. After both the February and March drops, the key 200-day moving average notably served as major support, helping to fuel strong rebounds in both cases.
On Tuesday, the S&P 500 extended its current rebound by gapping above its 50-day moving average and further rising above the key 2700 level. Choppy price action on Wednesday tentatively extended the rally slightly further before pulling back by market close.
As it currently stands, any further extension of the stock rally could meet some resistance around a key downtrend line that extends back to the January 2872 high and connects the mid-March peak at 2801. Any sustained breakout above that line, currently situated around the 2735 area, would be a significantly bullish signal that could indicate a subsequent retest of the mid-March 2800-area highs.
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