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Will S&P 500 Smallest Range in Five Months Blow Apart After Netflix Earnings?

Will S&P 500 Smallest Range in Five Months Blow Apart After Netflix Earnings?

John Kicklighter,
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S&P 500, Netflix, USDCNH and EURUSD Talking Points:

  • Risk trends were anchored this past session with the speculative pace-setter S&P 500 carving out its smallest daily range since Feb 19th
  • An after-hours earnings report from Netflix with a disappointing earnings per share has the potential to start a speculative cascade…if markets abide the signal
  • A Chinese 2Q GDP beat didn’t prevent the Shanghai from a sharp tumble, will US and European event risk carry the same surprise response for EURUSD?

S&P 500 Leads a Speculative Build Up, Will Netflix Help Trigger The Explosion?

If it weren’t for the numerous fundamental issues churning in the background, the persistent consolidation in risk-based benchmarks could be interpreted as steady transition back to ‘normal’. Many of the risk-sensitive measures I like to refer to for an overview of otherwise abstract sentiment moved further into technical congestion this past session. Nowhere was the situation more pronounced in my eyes than the S&P 500. The US index has moved solidly into a rising triangle that has formed in the past month, but this past session’s daily range – the smallest since February 18th – was particularly remarkable. A Chinese GDP release (bullish), an ECB rate decision (bearish) and Covid updates (mixed) all crossed the wires through Thursday without triggering a clear release from this benchmark. Perhaps the afterhours earning news will change that situation.

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Chart of SP 500 with 20 and 200-Day Moving Averages and Range as Percentage of Spot (Daily)

Chart Created on Tradingview Platform

While there is enormous influence behind the underlying health of the global economy or the implications of the pandemic’s resurgence, these systemic issues have not been reliably market moving. The same is not true for the bearings of the US tech sector. A leading group for risk appetite in particular these past months and years, a remarkable amount of justification has arisen from the bullish course of this group, and in particular the FAANG group. Among these large market-cap, tech leaders; we were offered our first official 2Q earnings update with Netflix figures crossing the wires after the close. The news was disappointing. While revenues beat expectations modestly, the EPS (earnings per share) fell short at $1.59 against a consensus of $1.82. With a group pushing record highs, even a modest beat can be construed as a disappointment. What about an outright miss like this?

Chart of Netflix Overlaid with FAANG Index (Daily)

Chart Created on Tradingview Platform

Prioritizing the Systemic Influences Through Week’s End: Earnings, GDP, Stimulus

As we move into the final trading session of the week, the high-level fundamental event risk thins out noticeably. From the scheduled data to the abstract fundamental influences, there is a material ebb in catalysts to rely upon. Even though the US earnings calendar hosts few of the market-defining updates I have been charting course for this season, there is still the Netflix impact to resolve. We will see fairly quickly through Friday’s New York open whether this company’s financial health will exert an impact on US indices and risk at large. Looking out to next week, the next major release on my radar will be Tesla – another company that has gained influence through popularity rather than technical heft.

Poll of the Top Market Moving Event Risk Next Week

Poll from, @JohnKicklighter Handle

Another theme that is a constant presence but an inconsistent driver is the pandemic. New cases of Covid-19 reportedly hit a fresh one-day record this past session and the number of headlines around this health crises seemed to justify the concern. Then again capital markets didn’t falter under the pressure. There is an obvious negative connotation to this threat as a resurgence in cases raises the risk of a second wave of recession, but there may be some offset in anticipation of a vaccine. Looking at the Google results for global search interest in “covid” which would carry a negative bias and “vaccine” which would be a positive predisposition; we find appetite for the resolution is strong in health-related queries. That said, pure news results find far less consideration around vaccines.

Google Search of ‘Covid’ and ‘Vaccine’ Globally in News Results and Health Results (Daily)

Chart Created on Tradingview Platform

For traditional data, the top economic listing this past session had to be the Chinese 2Q GDP release. The world’s second largest economy grew 11.5 percent quarter over quarter to soundly beat the 9.6 percent expansion forecasted. The annual pacing returned to 3.2 percent growth to also present an uncharacteristic deviation from economist expectations at 2.5 percent. This could have fed enthusiasm, but the closest speculative reading to the data, the Shanghai Composite, took a decidedly different path than textbooks would suggest. Perhaps this is doubt in the data, the details of June’s figures or concern about other issues like global trade. Regardless, there wasn’t any measurable lift to be found in Chinese stocks, the Yuan or even AUDUSD (read here how China impacts the Australian Dollar).

Chart of Shanghai Composite Index with Inverted USDCNH (Daily)

Chart Created on Tradingview Platform

Another laden docket this past session that didn’t exactly live up to the simple fundamental formula was EURUSD. The benchmark exchange rate had the ECB rate decision for the Euro to digest while US retail sales and initial jobless claims were Dollar fodder. In the former’s case, the hold on the extreme dovish policy mix was fully expected while the swell in consumption for the latter is easing of severe retrenchment. We’ll have another opportunity to either earn that 1.1400 break or project the reversal for this benchmark over the upcoming session as the EU discusses the large and critical stimulus program while the University of Michigan Consumer Confidence survey is my top listing for Friday data.

EUR/USD Bearish
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Change in Longs Shorts OI
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Weekly 21% -22% 1%
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Chart of EURUSD with 50-Day Moving Average (Monthly)

Chart Created on Tradingview Platform

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