• S&P 500 index climbed 0.77% on Friday, boosted by favourable tech earnings
  • Nikkei 225 index risks breaking below 21,900 – a key support level
  • Hang Seng index extends its consolidation, eyeing key support at 24,130

S&P 500 Index Outlook:

The S&P 500 index stock benchmark ended the month of July with a 4% gain – its best monthly performance since April. Upbeat earnings from the major US technology firms – Apple, Amazon, Facebook and Alphabet – boosted market sentiment, sending the technology sector 2.37% higher on Friday. Now, investors and traders are probably looking at probably what’s next to support the rally of the US stock benchmark after its astonishing 49% gain from the trough seen in March.

Headwinds seems to be around the corner – rating agency Fitch has revised the credit outlook of the United States to negative from stable, citing “the ongoing deterioration in US public finance and the absence of a credible fiscal consolidation plan”. This may serve to boost demand for precious metals as it highlights credit risk against the backdrop of booming debt levels.

Sector-wise, information technology (+2.37%), consumer discretionary (+2.36%) and communication services (+1.15%) were doing the heavy lifting. However, less than half of the companies ended higher in even those best-performing sectors. This suggests the rally was perhaps lifted by a few big companies, whereas the vast majority have probably run out of steam.

S&P 500 Sector performance 31-7-2020

S&P 500 Gains with Tech Earnings, Nikkei 225 Looks for Support

Technically, the S&P 500 index has reached a minor resistance at 3,270 – the previous high seen on 23rd July. Failing to break this level would probably result in a pullback towards support at 3,180– the 161.8% Fibonacci extension. The overall trend remains bullish as suggested by the 20-, 50- and 100-Day Simple Moving Averages (SMAs). The 200% Fibonacci extension level – at 3,358 – is a major resistance ahead.

S&P 500 IndexDaily Chart

S&P 500 Gains with Tech Earnings, Nikkei 225 Looks for Support

Nikkei 225 Outlook:

Japan’s Nikkei 225 index stock benchmark fell sharply on Friday as more than 400 new Covid-19 cases were reported in Tokyo. Virus concerns are undermining market sentiment, and are likely to remain the theme in the near term.

Technically, Nikkei 225 has fallen to a key support level at 21,900 after two months of consolidation. Breaking below this level would probably open room for more downside towards its 100-Day SMA at 21,400, and then a key Fibonacci support at 20,700.

Nikkei 225 IndexDaily Chart

S&P 500 Gains with Tech Earnings, Nikkei 225 Looks for Support

Hang Seng Index Outlook:

Hong Kong’s Hang Seng Index stock benchmark (HSI) extended its consolidation last week, testing its 100-Day SMA at 24,400. The index was adversely hurt by rising Covid-19 infections, a deep economic contraction and rising US-China tensions. This rendered Hang Seng one of the worst performing stock benchmark across the Asia-Pacific region. The outlook remains cloudy as there seems to be no quick solution to the above-mentioned topics.

In Shanghai, the stock markets have likely stabilized after a deep correction in July. Outstanding balance on Chinese margin trading has climbed to its highest level seen in more than a year (chart below), suggesting that investors are still in a ‘risk on’ mood. The margin trading balance has shown strong positive correlation with the Shanghai Composite.

S&P 500 Gains with Tech Earnings, Nikkei 225 Looks for Support

Source: Bloomberg, DailyFX

Technically, Hang Seng is finding support at 24,400, breaking which will probably open room to more downside towards the 61.8% Fibonacci retracement at 24,130. The overall trend remains bearish in the near term.

Hang Seng IndexDaily Chart

S&P 500 Gains with Tech Earnings, Nikkei 225 Looks for Support

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

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