Will earnings season be the catalyst for a move down in US equities? Or USD strength..or both..
To me it seems the smallest trigger anywhere globally could be enough to send Chinese markets into turmoil.
Hi I’m Lena,
Welcome to James Farro’s Market Overview.
Earnings Season begins today with a number of large companies reporting including J.P. Morgan, Johnson & Johnson and Intel among others.
The technical picture continues to be bullish but basically riding along very long term resistance levels as you can see here on the S&P futures monthly chart.
You can see the same overall picture here with Russell 2000 futures. And here with the I-Shares US housing construction ETF
James feels that these resistance levels will hold and the market will have a substantial correction with the catalyst either being continued Dollar Strength, the massive bubble we are seeing in Asian markets or negative earnings surprises out of the US.
The alternative would be for resistance levels to break and a subsequent parabolic move to new highs. But with the market totally ignoring USD strength for months now that case seems less probable.
Now, let us take a closer look at the US Dollar. This has been totally ignored by the US market. Here you see the USD Index going back to 1987. To maintain this trend the Dollar currently has an upside target of 1 point zero 8. This level is another 9 percent above where we are now. From here on up USD strength could become an issue for US equities. The knee-jerk reaction here is to assume the Fed will of course hold-off on raising rates as USD strength becomes a major drag on US growth.
The Fed can either lose credibility quickly by raising rates and crashing the markets and economy or they can lose credibility slowly over time as their attempt to eliminate the natural market cycle brings us all closer to a crash of epic proportions.The best charting teacher I know: