The major U.S. indexes moved higher this week despite gross domestic product growth of 0.7% last quarter. According to FactSet’s Earnings Insights, more than three-quarters of S&P 500 companies have surpassed their earnings estimates, and nearly 60% beat their top-line revenue estimates. The downside is that more companies have issued negative EPS guidance and valuations remain at 17.4x forward earnings, which is significantly higher than the 15.1x 5-year average and 14x 10-year average.
International markets were mixed over the past week. Japan’s Nikkei 225 rose 3.08%; Germany’s DAX 30 rose 3.23%; and, Britain’s FTSE 100 fell 1.43%. In Europe, reduced political risk from France’s election led investors to rush back into European stocks across the board. In Asia, stocks remain on edge amid rising concerns over North Korea with Japan and the United States holding drills off the country’s coast. President Trump has also given conflicting signals about his stance on global trade agreements that have complicated matters.
The S&P 500 SPDR (ARCA: SPY) rose 1.49% higher over the past week. After breaking out from its upper trend line resistance and pivot point at $235.54, the index rallied to its R1 resistance at $239.48 before moving sideways. Traders should watch for a breakout from these levels to R2 resistance at $243.21 or a retracement back to its trend line support before a move higher. Looking at technical indicators, the RSI is a bit lofty at 60.81, while the MACD recently experienced a bullish crossover higher.
The Dow Jones Industrial Average SPDR (ARCA: DIA) rose 1.87% over the past week. After breaking out from trend line resistance at the pivot point at $206.93, the index moved to its R1 resistance at $210.22 before moving sideways. Traders should watch for a breakout to R2 resistance at $214.29 or a move lower to its 50-day moving average at $207.09. Looking at technical indicators, the RSI appears lofty at 61.01, but the MACD experienced a bullish crossover that could be a positive sign of things to come.
The PowerShares QQQ Trust (NASDAQ: QQQ) rose 2.60% over the past week, making it the best performing major index. After breaking out from its upper trend line and R2 resistance at $134.85, the index moved to new highs this week. Traders should look for an ongoing move higher to $140.00 levels or a retracement back to its R2 resistance to consolidate before a further move higher. Looking at technical indicators, the RSI appears heavily overbought at 75.81 while the MACD remains in a bullish uptrend.
The iShares Russell 2000 Index ETF (ARCA: IWM) rose 1.35% over the past week, making it the worst-performing major index. After breaking out from its trend line resistance, the index briefly moved to its R1 resistance at $141.16 before taking a downturn. Traders should watch for a rebound from trend line support to retest R1 resistance or a breakdown lower to its 50-day moving average at around $136.91. Looking at technical indicators, the RSI appears neutral at 57.57 while the MACD remains in a bullish pattern.
The Bottom Line
The major U.S. indexes moved higher over the past week as several moved into overbought territory, although MACD readings remained largely bullish. Next week, traders will be watching several key economic indicators including the FOMC meeting announcement on May 3, jobless claims on May 4, and employment data on May 5. Of course, traders will also be closely watching the ongoing geopolitical conflict between the United States and North Korea.
Note: Charts courtesy of StockCharts.com. As of the time of writing, the author had no holdings in the securities mentioned.