This reporting season is starting to demonstrate a strong recovery for large companies in the US that were hit hard by Covid. This leads one to believe that the rest of the US economy is on track and nearing pre-Covid levels.
IBM closed slightly lower overnight but is now up over 3% in after-hours trade after beating EPS expectations. US futures are already back in the green, so we do not expect this to be the start of a pullback just yet.
The typical seasonal pattern for the markets is a rise into May and then ‘Sell in May and Go Away’. This means more times than not May is a bearish month. A correction in May is also common to see, especially if we see a strong up into the pullback.
Locally some of our banks report early May and most Miners and Energy stocks will have quarterly production reporting this month. Expectations are strong for our domestic reporting, with continued recovery expected here as well.
The XJO is expected to edge lower on open, following similar moves from the U.S last night. Yesterday, as expected, we used the 7100 level as a resistance to pull back from, giving up most of the days gains to finish flat. The pull back expected this morning should see us open near 7040. If this remans true by open, despite being a small move, it may be large enough to break the short-term uptrend line. This is what we saw in the U.S last night, and if we see it reflected in our market today, will ultimately weaken the accelerated uptrend.
It may also herald the beginning of a pullback, or by the very least, a consolidation. If we do see a pull back in the coming days, the next key target for our market is 7000, and then 6950. If the pull back extends, the key target is 6850 where the uptrend line comes in.
Despite the short term movements, the market remains overall bullish – at least until the end of April, with 7200 remaining the target.
US shares closed lower overnight, with some selling after a fortnight of strong gains. US selling happened in the absence of major economic data, but company earnings reporting continued to be strong, with Coca Cola the latest of the major companies to smash their consensus earnings expectations; with the company stating that volumes had returned to pre-virus levels.
Equities were also dampened a bit by a rise in Government bond yields, with the US 10-year ticking back towards the 1.6% level; keep an eye on these yields as should they tick beyond 1.75%, we could see some more selling. Every major sector closed flat or lower, with Technology stocks the worst performers on the night as Tesla fell heavily following reports that an unmanned Tesla was involved in fatal accident.