S&P technicals looking a little shaky as earnings kick into higher gear

Financial markets are calmer on this last day of the week, with US index futures pointing to a slightly firmer open on Wall Street. Concerns over Portugal’s banking sector have diminished, with the benchmark PSI-20 index up some 2 percent. Other European markets have likewise recouped some of the losses from yesterday and volatility is moderating. Banco Espirito Santo's shares were again suspended earlier, but have now re-opened and are currently up 3%. With today being a quiet day in terms of data releases, the markets may drift aimlessly or push slightly higher as the sellers continue squaring their positions ahead of the weekend. Meanwhile Wells Fargo has been the first major US bank to report its earnings results. As expected, the San Francisco lender posted a second quarter EPS of $1.01, although its revenue of $21.1bn was higher than analysts had anticipated. Earnings will kick into a higher gear next week. Citigroup, JPMorgan Chase, Bank of America, and US Bancorp will be among the banks to report their numbers. If on balance their results are better than expected then we may see the indices find some support and head towards fresh all-time highs once again. Otherwise the recent weakness could turn into a correction of some sort.

The S&P bounced back on Thursday afternoon as it found support from 1950/55. This area was formerly resistance and corresponds with a bullish trend line. The index needs to hold above here otherwise we may see a more significant pullback. But with the RSI breaking its own corresponding trend, there is a chance the S&P may now follow suit. If it does, then the next obvious level of support would be all the way down around 1930, which ties in with the 50-day moving average. Below that is the 38.2% Fibonacci retracement level of the upswing from the April low, at 1918. Depending on how fast or otherwise the index would get there (if it does), there is another bullish trend line also converging around 1918. But a more profound support level is around 1900, which admittedly is some way off from where we are at the moment. Meanwhile 1975 is the key resistance level to watch on the upside. A potential break above this level could pave the way for the July’s high of 1985.5 and potentially a run towards the next key psychological barrier of 2000.