The Standard & Poor’s 500 Index rallied 0.9 percent to 2,111.19 at 10:43 a.m. in New York, after slipping 0.7 percent over the previous three sessions. The Dow Jones Industrial Average climbed 91.67 points, or 0.5 percent, to 17,642.36 with its rise partially muted by Disney’s drop. The Nasdaq Composite Index advanced 1.2 percent.

“The market has been under a little bit of pressure looking for a reason to go back up,” said John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York. “The market’s moving in the right direction. A slow, steady recovery is probably a good thing. The single most important factor affecting stock markets is what the Fed is doing.”
 

Eoin Treacy's view

The fact that two thirds of companies reporting earnings have so far beaten expectations belies the rather extreme single stock volatility that has been evident. Google surged, Biogen collapsed, Amazon surged and Apple surged before giving it all up. An investor in an ETF will have been relatively unaffected by these gyrations but individual investors are being held hostage to earnings announcements.

Disney has been a remarkable performer but today’s downward dynamic is the largest in at least five years. The share was overextended, has now unwound the majority of that overbought condition and the broad progression of higher reaction lows remains intact. Disney has made some wonderful acquisitions which is reflected in the fact the share is up 4X since 2011. It will need to hold the region of the 200-day MA if medium-term scope for additional higher to lateral ranging is to be given the benefit of the doubt.    

Activision Blizzard on the other hand has surged higher on positive earnings to extend its overextension relative to the trend mean.

This survey from the Wall Street Journal highlights just how many people already have a Netflix subscription. However when ¾ of all people already have your product the company is heavily dependent on foreign growth. The share is currently more than 50% overextended relative to the trend mean and has a forward P/E of 500. The first clear downward dynamic, held for more than a day or two, will likely signal a peak of at least near-tern significance.

It’s all well and good to highlight risks but is there any sector that is performing in a reasonably consistent manner? The broad Consumer Staples, Consumer Discretionary, Healthcare and Financials sectors remain in consistent uptrends but there are some wide differences in the performance of their constituents. 




For example Mondelez International is becoming increasingly overextended while Proctor & Gamble will need to find support soon if top formation completion is to be avoided.


Against this background the S&P 500 has been relatively inert; trading in a 4% range since February. Ranges are explosions waiting to happen so the eventual breakout from this range whether up or down is likely to represent a move that makes the 4% congestion area look trivial.