There will be a number of earnings reports this week, and traders should start focusing on the trend in earnings. That could be bearish for the stock market.
Weak Start to Earnings Season Puts Bull Market at RiskSPDR S&P 500 (NYSE:
SPY) closed down 0.27% last week. Technical indicators are mostly bullish although bearish divergences are forming.
The chart below shows
Moving Average Convergence/Divergence (MACD) on a weekly chart of SPY, although a similar pattern can be seen with other indicators such as
stochastics or the
Relative Strength Index (RSI). Bearish divergences are also visible on daily charts.
A bearish divergence forms when prices move to new highs while an indicator fails to confirm the highs. Many technical analysts believe that divergences are eventually resolved with a decline in prices, but this belief is not confirmed by backtesting. Divergences lead to lower prices only about a third of the time in testing.
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