Signs of Economic Slowdown Amid Weak Earnings and Indicators

The latest disappointing earnings reports from major companies, as well as weak economic indicators, suggest a potential slowdown in the US economy. The stock market has declined by 4% since July 16, and Tesla’s stock fell by 12%. Manufacturing PMI and New Home Sales also fell short of analysts’ expectations.

The US Manufacturing PMI dropped from 51.6 in June to 49.5 in July, indicating a slowdown in business conditions within the goods-producing sector since December. Meanwhile, the stagnation in home sales is attributed to high mortgage rates.

High Impact Economic Events
Thursday 08:30 am (GMT+0) – Germany: Ifo Business Climate (EUR)
Thursday 08:30 am (GMT+0) – USA: GDP q/q (USD)
Thursday 12:30 (GMT+0) – USA: Core Durable Goods Orders m/m (USD)
Friday 12:30 (GMT+0) – USA: Core PCE Price Index m/m (USD)

Since bouncing back from 4296.95 on April 19, the S&P 500 has been on the rise, forming consistently higher highs and higher lows, ultimately reaching a record high of 5674.14. However, the impact of sluggish company earnings became evident on the price chart on July 24, leading to a bearish reversal known as a failure swing in technical analysis. Specifically, the peak at 5588.75 failed to surpass the previous high at 5674.14, and as a result, the price dropped below the low of 5498.59, indicating a failure swing. Both the 50-period Exponential Moving Average (EMA) and the Momentum oscillator support the bearish outlook. In particular, prices fell below the EMA, and the Momentum oscillator is registering values below the 100 baseline.

Should the buyers seize market control, traders may direct their attention toward the four potential resistance levels below:

5498.59: The first resistance is determined at 5498.59, overlapping with the trough of the failure swing marked on July 17 and the 23.6% Fibonacci Retracement of the recent rally.
5588.75: The second resistance is set at 5588.756, corresponding to the peak of the failure swing.
5674.14: An additional resistance level is positioned at 5674.14, coinciding with the previous all-time high set on July 16.
57.36.15: The fourth price target is the R2 resistance calculated using the weekly Pivot Point method.

Should the sellers maintain market control, traders may consider the four potential support levels listed below:

5383.44: The primary downside target is set at 5383.44, representing the 38.2% Fibonacci Retracement calculated from the low at 4926.95 to the high at 5674.14.
5209.12: The second support level is 5209.12, which corresponds to the 61.8% Fibonacci Retracement of the recent rally that began on April 19.
5124.10: The third support line is located at 5124.10, corresponding to the peak recorded on April 29.
4926.95: This is an additional support level coinciding with the start of the rally on April 19.

The 4% market decline since July 16, driven by poor company earnings and weak economic indicators, signals a potential US economic slowdown. Tesla’s 12% stock drop, the contraction in Manufacturing PMI, and stagnant New Home Sales due to high mortgage rates contribute to the bearish outlook.

Technical analysis shows a bearish reversal in the S&P 500 supported by the 50-period EMA and Momentum oscillator. Key support and resistance levels will guide traders amid the current volatility.