Nothing seems to be able to destabilize Wall Street which has just completed the second best first quarter in its history with an impressive gain of almost 12%. Neither a Non-Farm Payroll (NFP) clearly disappointing nor European uncertainties and even less tension in North Korea do not seem able to prevent the U.S. index to beat new records. Yet at the dawn of a quarterly earnings season which worries, nobody is ready to take position in one way or another as evidenced by the switchback trend of recent days.
The latest macro-economic figures such as the weakness of NFP of last Friday and disappointing ISM Manufacturing and Non-Manufacturing do not reassure investors about the strength of the U.S. economy growth. However, operators continue to believe in a sustainable continuation of monetary easing by the Fed, which support the financial markets. Bernanke showed a reassuring speech stating that highly accommodative and expansionist monetary policies in which world economic powers currently use, were constructive and necessary for the economic recovery. Meanwhile, he said the stress tests that the central bank conducts periodically helped to stabilize the U.S. financial system. In addition, the recovery of the sector was clearly positive for a stimulus in view of the size of credit in the economy.
Finally, all eyes will be on the earnings season including the publication this week of two major U.S. banks JP Morgan and Wells Fargo on Thursday. Monday, Alcoa announced an improved performance in difficult markets with a net profit of 149 million dollars, or 13 cents per share in the first quarter, against 94 million (nine cents) a year earlier and sales were down 3% to 5.8 billion dollars. Predictions surrounding corporate earnings were actually lowered. The Thomson Reuters' consensus estimates an increase of only 1.6% in quarterly earnings of companies in the S&P 500. In January, forecasts were 4.3%.
Technically, the dynamics of the Dow Jones remains on a strong upward trend in weekly data above 14,000 points, threshold which coincides with the 20-week moving average. However, take position is currently very difficult on the eve of the earnings season after a race to records. We are currently in favor of a consolidation that could allow the index to offer new buying points of purchase. However caution in such trend leads us to expect a break in daily closing price of the bullish trend line (in blue on the chart) located today around 14,420 points to open a short position and aim a decrease towards 14,035 points.
This strategy will be implemented through the E-mini DJ FUTURE (code: YMXXXX) on the futures market CME E-mini.