Equities report: Is the rise maintainable?

US stock markets got some support near the end of the past week, with economic data implying a cooling of inflationary pressures in the US economy and thus allowing traders to expect an easing of the Fed’s hawkish stance. Yet last week’s optimism seems to have been replaced with doubts this week, yet the early close on Monday and yesterday’s public holiday may have also played its role as there was low volatility. In this report, we aim to present news that we singled out and could affect various shares as well as have a small comment about fundamentals surrounding the course of US stock markets and for a more rounded view we are to close with a technical analysis of a US stock market index.

Meta to present Threads

Meta is to present through Instagram, its new app called Threads. The app is to be released on Thursday and is considered to be a direct competitor to the microblogging application Twitter. The release gained considerable attention recently as Twitter owner and billionaire, Elon Musk announced a temporary cap on how many posts users can read on the social media platform among other changes. We suspect that Meta may have started intensifying its efforts in the sector, after Musk took over Twitter, given that his controversial and intense personality could drive some of Twitter’s users out. The question remains whether Threads is going to be able to compete directly with Twitter. For the time being, we note that despite there being already rival applications, like Blue Sky and Mastodon, none was able to threaten Twitter’s dominance in the sector. On the other hand we have to note the possible synergies that could be created through the use of Meta’s Instagram and Threads applications. On another note we also remind our readers of Meta’s direction towards a virtual environment, hence we suspect that Threads application may be a “side-project” and if actually so, may not get the proper amount of attention required. In any case, the new app is to be closely watched and we expect field experts and opinion leaders to be in the epicenter of Meta share traders’ magnifying loop in the coming weeks. Any positive comments may support the share’s price and vice versa.

Amazon has regulation problems, on two fronts

Amazon seems to be facing some regulating issues, again. In Europe and specifically in Germany, it seems that the company is losing the case in court where it had filed an appeal against Germany’s competition watchdog, the Bundeskartellamt, as the company was labelled “market-dominant”. In its preliminary verdict the court found that the German authority was right, which in turn implies that the company has violated German competition regulations. The issue may have wider repercussions for Amazon in Europe a key market for the company and we do not expect the final verdict of the court to materially differ from the preliminary one. Furthermore, the US seems to be planning a restriction to the access of Chinese companies in US cloud-computing services, a sector at which Amazon is a key provider. The new rule could force Amazon and Microsoft to seek for government permission before providing cloud computing services that use advanced artificial-intelligence chips to Chinese customers, according to Wall Street Journal. We expect both issues to weigh on Amazon’s share price if magnified. The company’s earnings release for the past quarter is still a way off, hence we may see it not playing a key role currently in regards to the company’s share price.

Tesla hits new sales record

Tesla hit a new record high number of vehicles delivered, as it reached sales of 466k in the second quarter. Yet it would seem that sales of rival companies such as Chinese car makers also were on the rise, at least for June. Despite the issue implying a faster growth rate for Tesla, new worries about the financial performance
of the company emerged. It should be noted that the record number of sales was achieved given the discounts on the price of the cars, produced by Tesla. Hence the increased sales are expected to reduce the company’s profitability, however that will be verified once the company releases its earnings report on 24th of July. For the time being, the company’s share price seems to be at high levels and rising yet should the EPS figure drop further after last quarter’s drop, we may see the share’s price suffering.

General market fundamentals and key releases

We highlight that in the past week, all three major US stock market indexes got a boost, especially on Friday. The key reason was the slowing of the Core and headline PCE price index for May in an indication that inflation in the US economy seems to be cooling off. The release tended to intensify market expectations for a possible easing of the Fed’s hawkishness and thus allowed for a more risk-oriented approach by market participants. Hence we expect the bank’s intentions to continue to substantially affect US stock markets and we highlight the release of FOMC’s June meeting minutes on Wednesday. Should the document once again verify the aggressive hawkish stance of the bank we may see US stockmarkets slipping, especially as they will practically be reopening after a public holiday. Yet the market worries for a possible recession in the US economy and a possible slowdown of the global economy are still present. Should the market worries grow further we may see once again US stock markets weakening and vice versa. Also on Friday, we highlight the release of June’s US employment report in the American session. The release is expected to have ripple effects also in US stock markets and should the data show that the US employment market remains tight and resilient thus allowing for the Fed to maintain its hawkish stance unchanged, we may see US stock markets weakening. Lastly and on a more fundamental level, we note the visit of US Treasury Secretary Yellen to China. There seems to be an effort to improve the US-Sino relationships or at least not allow them to deteriorate further, and should such signs be sent by Yellen’s visit in China, we may see the market mood improving and allowing US equities markets to rise.

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US100 (Nasdaq) Daily Chart

Support: 14650 (S1), 13920 (S2), 13300 (S3)

Resistance: 15300 (R1), 16000 (R2), 16750 (R3)

Nasdaq as mentioned in last week’s report hit a ceiling at the 15300 (R1), which was verified once again on the 3rd of July, yet also tended to remain clearly above the 14650 (S1) support line, overall maintaining a sideways motion. It’s characteristic of the sideways motion that the breaking of the upward trendline guiding the index since the early days of May, was verified. We tend to maintain our bias for the sideways motion to continue yet note that the RSI indicator in the daily chart remains at relatively high levels implying a residue of a bullish sentiment in the markets. We also note the narrowing of the Bollinger bands, as a signal of lower volatility that may allow exactly the sideways motion to continue. Should the bulls take over, we expect the index to rise above the 15300 (R1) resistance line and aim for the 16000 (R2) resistance hurdle. On the other hand, should the bears be in charge of the index’s direction, we may see Nasdaq breaking the 14650 (S1) support line and aim for the 13920 (S2) support barrier, a move that would allow us to draw a downward trendline, exactly showing also the limitations of a possible downward movement.

If you have any general queries or comments relating to this article please send an email directly to our Research team at research_team@ironfx.com

Disclaimer:
This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

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