Wednesday, August 13, 2014

Market Technicals Turn More Positive

Short term technicals for the S&P 500 Index have turned more positive after the market's recent pullback. As the below chart shows, the 100 day moving average has served as important support for the market over the past year and a half. Each time the market has experienced a pullback, the market has managed to bounce off of the 100 day moving average line. Additionally, the full stochastic oscillator has begun to turn higher from an oversold level. The vertical dotted lines on the chart display areas where this indicator began to turn higher and where the S&P 500 Index bounced off of its 100 day moving average. The money flow index (MFI) declined to a level near where an oversold market would be indicated (< 20) and may be bottoming and attempting to turn higher. The MFI incorporates volume and is another version of the relative strength index. With volume included in the calculation, some believe volume leads price; therefore, increasing volume at a time the market is turning higher can be indicative of a market move higher.

From The Blog of HORAN Capital Advisors

From a fundamental perspective, earnings in the second quarter are expected to increase by 8.2%. When looking at earnings that exclude Citigroup's (C) earnings report, Q2 earnings are expected to be higher by 10%. We have not seen double digit earnings growth (ex Citigroup) since 2011. Third quarter earnings growth expectations equal 9.3% and fourth quarter growth expectations equal 12.2%. With strong earnings reports from companies and a market that seems to have worked off oversold conditions, higher prices may be realized if not just in the second half of August, but through the balance of the year. Of course, geopolitical issues are a wild card as well as the mid term election in the U.S. in November.

Disclosure: No position in C

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