Can “Big Tech” earnings prevent a correction on US futures
Earnings on Microsoft and Alphabet have helped to pull US equity futures higher overnight. However, can this be enough to prevent what looks to have been a developing correction? We take a look at the numbers and how the moves impact the E-Mini NASDAQ 100 futures and E-Mini S&P 500 futures
- The numbers look encouraging for Microsoft and Alphabet
- The after-hours jump in the shares reflects market encouragement.
- However, there is a building corrective outlook on US futures as fears of a US economic slowdown mount
- Can these moves help to improve the technicals on E-Mini NASDAQ 100 futures and E-Mini S&P 500 futures which have been starting to deteriorate?
US “Big Tech” stocks post strong results
Both Microsoft and Alphabet have posted encouraging quarterly earnings.
Alphabet beat the consensus of estimates on both Q1 sales and earnings, even if earnings were still down from a year ago. The encouraging performance in both search and cloud computing helped the reaction, but a nice heft $70bn share buyback would have also been a boost.
However, the Alphabet results were eclipsed by the very strong showing from Microsoft. A 7% year-on-year increase in Q3 sales and a 9.5% increase in earnings decisively beat estimates. With an impressive 22% growth in the cloud products (which generate over half of group revenues), this was picked up on by investors. A further $10bn backing of artificial intelligence product development was also given the thumbs up.
After-hours reaction bodes well for a positive market reaction today
The shares have jumped strongly since the companies reported their results after the closing bell on Wall Street on Tuesday.
In after-hours trading, Alphabet jumped around 2% to $105.97. However, Microsoft saw a far more impressive leap of around 8.4% to $298.68.
These moves certainly bode well for the early moves in the share prices when trading resumes early today.
Furthermore, due to their relative weightings in the US indices, the moves have also had a positive impact on US futures overnight.
- Alphabet accounts for around 15% of the NASDAQ 100 Index
- Microsoft has a weighting of just over 12% of the NASDAQ 100 Index.
So it comes with little surprise that the E-Mini NASDAQ 100 futures are +1.1% early today. The E-Mini S&P 500 futures are a more modest +0.3%.
Mounting concerns over the negative trends in US economic activity data
There may be hope that the rallies in Microsoft and Alphabet can help to pull US futures higher. However, looking at the bigger picture, the outlook has been starting to sag over the past week or so.
This deterioration has come as markets seem to be focusing increasingly on the warning signs coming from the US data. Although the Fed may be in the final throws of monetary policy tightening, the data is showing US economic activity is turning sour.
Late last week, the Leading Indicators report from the US Conference Board forecast that:
“economic weakness will intensify and spread more widely throughout the US economy over the coming months, leading to a recession starting in mid-2023.”
This week we have also seen that US Consumer Confidence has fallen to its lowest since July 2022. Furthermore, the Richmond Fed Manufacturing Index is the latest regional Fed survey to disappoint to the downside.
The trends of most of the regional surveys (aside from the notoriously erratic New York Fed survey) point to continued deterioration in activity.
Traders are sitting up and taking notice of these worrying trends in the data. This has been increasingly weighing on the outlook for US futures.
How futures respond to the rebound will be key
So looking at how futures have reacted overnight, we have seen an impressive rebound, but is it enough to turn around an ailing rally?
For the E-Mini NASDAQ 100 futures, there is a top pattern that formed at yesterday’s close (before the after-hours rebound for Microsoft and Alphabet).
A decisive close below the support at 12925.50 is a corrective signal. This is now a key gauge as the market rebounds today. If the rally falters and the futures close back below this support again, it would be a confirmation of the correction coming.
I would then be watching the support of the late March low at 12634. If this is broken and the daily Relative Strength Index momentum indicator falls below 40 then it would open for a deeper correction back towards the support of the uptrend channel.
For the E-Mini S&P 500 futures there has also been a corrective move that has been signalled by yesterday’s sharp move lower.
A close below 4096.50 was seen yesterday and already the early rebound in the futures is faltering. A second close below 4096.50 would pay into what looks to be another failure at the resistance of the top of the four-month consolidation rectangle.
If there is a failure of this overnight rally, then a retreat towards 4000/4010 cannot be ruled out.
Steve Miley
Co-Founder of TradeDay.
Steve is the former head of Technical Analaysis research at Merrill Lynch and Credit Suisse, and owner of the award winning research boutique Market Chartist.
