The S&P 500 broad market index took up a defense position at 4390 points. This is the lowest possible support level for this week, but it is strong enough to hold amid moderate pressure. However, it is not strong enough to tackle serious threats. So, it is of paramount importance that corporate earnings reports and the Federal Reserve’s (Fed) Chairman Jerome Powell do not give us any dramatic surprises.
More than 7% of companies from the S&P 500 index list have delivered their Q1 2022 earnings reports, while 75-77% of them managed to beat the consensus of Wall Street analysts. However, this level should not be overestimated, as it has been seen to be the average for the recent years. More interesting is the expected rise of the average net profit level for Q1 2022 that is at 5.1%, the lowest since the pandemic Q4, 2020.
So, positive data could be attributed to low expectations rather than to the positive dynamic of financial results. Even such tricks are of minor significance amid blistering inflation at 8.5% as profit could not compensate for the risks associated with stocks.
This week Netflix (NFLX) and Tesla (TSLA) are scheduled to deliver their reports. No positive results are expected from the streaming giant as consensus suggest the slowing down of new clients with only 2.5 new subscribers being added to the list of clients over the first three months of 2022. This is definitely a weak number, but it could turn out to be an optimistic view as pessimistic figures suggest only 1.6 new customers were added after the company left Russia. The report will be published on Tuesday and investors should buckle up and be prepared for a possible corporate failure of Netflix. However, this misfortune will unlikely lead to the S&P 500 index to breaking through the 4390-support level, but it may temporarily dive below that landmark.
Tesla (TSLA) may come to the rescue as the corporate story here seems to be rather optimistic. The company is expected to boost vehicle deliveries by 68% compared to the Q1 2020. Such a deliveries expansion level could provide a good push-up for the stock market. However, we should stop here as long positions for Tesla stocks are not justified right now. We should not underestimate a temporary shutdown of Tesla’s gigafactory in Shanghai. Moreover, Tesla’s current stock prices are not justified by its fundamentals. Elon Musk has recently announced a bid to take over Twitter for $43 billion. In case he succeeds in this take over, he would need to sell part of his Tesla shares. Last time he did this, in December 2021, Tesla’s stocks plummeted by 30% over a few months.
If we see a mixed corporate earnings story this week the S&P 500 index may survive above 4390 points. Statements by Mr. Powell from the Fed, President Christine Lagarde from European Central Bank and Andrew Bailey, the Governor of Bank of England, may not add any volatility to the market if they continue to reiterate what they previously said without any hints to further monetary tightening.
Next week the countdown to the Fed meeting on May 3-4 will begin, so it is premature to discuss short positions on the S&P 500 index. A matter for discussion will arise if the index rebounds to 4480-4530 points or if it drops below 4300 points during the coming weeks.
Brent crude prices are testing the first resistance level at $112-115 per barrel. This is a key level to activate the scenario to boost Brent crude prices towards $160-180 per barrel. However, a swift breakthrough of this resistance seems premature. The more likely timing for such a scenario may appear in May as the European Union could announce a ban on crude from Russia and International Energy Agency member states could release 240 million barrels of oil from their reserves. A breakthrough of the $124 level would confirm that the scenario has been activated.
Gold prices rose to $2000 per troy ounce amid soaring combat action in Eastern Ukraine and Chinese military exercises around Taiwan. Investors fear such exercises may easily expand to a full-scale warfare following the model of military drills announced by Russia just before it invaded Ukraine. With this in mind, sell positions opened at $1950-1960 should be closed once opportunities to close them without losses occur. We may expect a drop of gold prices at the end of May or the month of June.
The EURUSD is running alongside an aggressive downside pattern with a target at 1.07000-1.08000. The downward movement may continue below 1.07000, but there are no good entry points for the deal now.
The GBPUSD is going down to 1.28000-1.28500 by the end of April. This week the primary support level is located at 1.29000-1.29300, while a good entry point for short positions is far above – at 1.31000-1.31200.