Better than expected earnings from Citigroup helped catapult the market to a new all time highs.

Introduction

The global markets continued to rebound this week with the start of trading in Japan. Asian indices powered their way close to 1% higher and were then surpassed by EU indices and an average 1.5% gain. The ripple of fear that sent the markets seeking support last week has run its course. For now, the focus is back on earnings and Citigroup gave impressed the market with its. The report was a nice surprise for the markets and helped to send the cash markets higher, indicating an opening for the SPX about ten points above last weeks close. At the open the indices quickly found today's highs, a new all time high for the Dow Jones Industrial and Transportation Averages, before settling down for a mild day of trading.


This is the first big week of earnings. It's not the biggest week in terms of numbers, there only about 150 companies reporting, but the bulk of the banks will report this week along with some other important names. Today Citi, tomorrow Goldman Sachs and JP Morgan, Wednesday is Bank of America's turn with Morgan Stanley on Thursday. In between those reports are dozens of small and regional banks as well as other top names. Even though this week is well known as big for banks it is also big for tech, the internet, consumer products, healthcare and others. Names on the list that popped out at me include Intel, Advanced Micro Devices, Yahoo, Ebay, Johnson & Johnson, Abbott Labs, Yum Brands, Google Class A and Whirlpool.

Earnings Calendar 7/15/2014

On top of the rosy earnings news there was other business news for the market to chew on. Sotheby's and Ebay are in talks for teaming up to provide live streaming auctions worldwide. Whiting Petroleum is buying Kodiak Oil and Gas, making the largest single player in the Bakken Shale formation of North Dakota. Alibaba has updated its IPO filing to raise an estimated $130 billion in the initial offering. Shire PLC has received a new bid from Shire that it is considering at this time. Mylan has acquired its tax inversion through the purchase an Abbot Labs international division.

No Economic data was released today but this week is important. There are roughly 20 releases this week, some monthly some weekly. Early in the week is Retail Sales, Empire Manufacturing, Import/Export prices and the Fed's Beige Book. Mid week is dominated by PPI, TIC flows and Industrial Production. Thursday is the usual jobless claims with the addition of housing starts, building permits and the Philly Fed followed up on Friday by Michigan Sentiment, Leading Indicators and CPI.


Even though there is no numerical data for us to ponder today there is always the weekly survey of Business Confidence put out by Moody's. Mark Zandi reports that “US business confidence surged to a record high last week” and that hiring is still strong. In addition to a similar statement in last weeks report he also says that “hiring intentions are especially robust”. This is in line with the last few months of semi robust NFP/ADP numbers and the down trend in jobless claims. There still hasn't been a surprising or marked jump/spike/improvement or what have you in jobs but does there need to be when it keeps going steady the way that it is? And with the number of millenials that will be reaching employment age over the next few years to a decade there are people to keep that trend going for a long time.

The Banking Index

It's bank week so let's start off with the banks. Citigroup reported earnings that beat on the top and bottom lines. The bank also said that it would pay $7 billion to settle charges filed against it in regards to mortgage backed securities. Both revenue and earnings were down from the prior period but not as much as expected. Revenue of $19.3 billion resulted in adjusted earnings per share of $1.24, just a penny of shy of the previous year. Expectations were for earnings to be around $1.08 per share. Interest margins increased to 2.87%, credit losses declined 16%, deposits increased by 3% and loans increased by 8%. Shares of Citigroup jumped more than 3.5% in the pre market but sold off from the opening high. Shared closed up by 3% on high volume. The stock is still well within a long term trading range but indicators support some near term strength and a stochastic buy signal that could take it to the upper end of said range. Current resistance is around $50 with support just below at $47.50 and the short term moving average.


JP Morgan reports tomorrow and is scheduled to release at 7AM. The bank is expected to report earnings of about $1.30 per share, down from the year ago period of $1.45 per share. This is due to an expected 5% decline in revenue. If Citi can be any kind of an indicator then we can now expect JPM to at least meet the expectations as Wells Fargo did last week or beat them as Citigroup did to today. JPM also popped at the open, climbing about 1.25%, but was capped at the 30 day EMA. Current prices are likewise suspended between near term support and resistances around $55 and $57.50. The indicators are bearish at this time but in the process of rolling over. A test of resistance at least could be possible, provided the report tomorrow is not a disappointment.


The Banking Index also jumped but opened inside a potential resistance zone. The index pushed into the zone but was repelled, falling back beneath it before the close. The index has been wrangling with this zone for about a month now, the third time it has been at this level since the first of the year and has yet to break above it. The indicators are not looking good at this time but could be setting up for a break out; if the banks report well, and the index can maintain the current levels, and economic data is good. Current support and resistance are around the $70 and $72.50 levels, with the index right in the middle. A good report from JPM and others could go along way toward helping the index to move up to resistance.

 


The Gold Index

My fears of a bull trap were not misplaced. The rising tide of stocks, boosted today by Citigroup, and the underpinning steadiness of the economic situation pulled the rug out from under gold prices today. Gold fell so hard and so fast at the open of trade this morning that I had to double and triple check to make sure I wasn't hallucinating. Prices on my charts were way ahead of prices on the TV which caused about 5 minutes of confusion, CNBC indicated gold at Friday's close while my charts did not. Price settled just over $1307 per ounce after moving down as much as $35 during the day. Gold is now sitting just above the $1300 long term support/resistance line and what I think could be a pivotal point on the charts. A break below this level could easily take gold down to $1250.

The Gold Index fell as well and a little harder. The Gold index lost over 2.75% in today's action falling from resistance and my suspected bull trap. The index is still above another near/short term support line at $100 but I think it will fall under pressure. There is growing divergence in the MACD with momentum about to turn bearish while stochastic is also diverging and now showing the bearish crossover. In terms of the underlying down trend in the index this looks like a strong trend following signal. Supports are at roughly $5 increments upon a break of $100 with near term possibilities around the 30 day EMA and the March/April bottom. Risk at this time as always is gold price and earnings outlook. A break below $1300 for gold could be a catalyst for a break below $100 in the index. The major miners report earnings around August 7th .


The Oil Index

Oil prices traded in a tight range around $100.75 before ending the day near $101. Prices hovered as traders weigh the possibilities of supply disruptions in Libya even as Libyan production increases. Last week's reports, and updates over the weekend, have current production at Libya's main oil terminal up by roughly 300% to about 450,000 barrels per day. At the same time new violence sprang up in Tripoli and there were renewed protests from rebel factions impeding the operation of the LIbya's other oil port. Also, the possibility that economic rebound could expand/is expanding is on everyone's mind as well.

The Oil Index traded higher today and moved just above the 30 day EMA. The index is making a small, quiet bounce from long term support with early sign of possible entry from the indicator. Bearish momentum has peaked and stochastic is making an early/weak trend following crossover. The index may consolidate along this level until economics, politics or earnings can move oil prices again. A break below 1650 would find support around 1625 and 1600 with up side targets for resistance at 1700 and 1725.


The USD/JPY

The Bank Of Japan meets again this week for its monthly policy meeting. The bank is largely expected to do nothing and even with the recent weak data and poor 1st quarter GDP I tend to agree with that. For one, the yen is well above the original target rates of Abenomics which were around 95. For another the BOJ has said many time that they are happy with the current recovery and see no need to adjust rates. The USD/JPY has been trading in a tight range since February, basically since the BOJ started being firm on current policy, and is near the bottom of that range now. The indicators are very weak and point to a neutral and quiet market.


The Indices

Today the Dow Jones Transports led the way higher. The index climbed close to 0.7% in today's session and making a new all time high. The index also moved above the high of the bull flag I have been tracking in possible confirmation of that pattern. If so this would give the index a target near 8,750 in the short term. The indicators are firing a trend following signal but very weakly. MACD and stochastic are both just crossing their respective signal lines after a short period of flattish movement. This could be just random fluctuation ahead of more substantial earnings or a precursor to expectations from the sector this quarter. Tomorrow JB Hunt, an index component, reports earnings. Today the stock rose about a half percent.


The Dow Jones Industrial Average was runner up today with a gain of 0.65%. The blue chips set a new intra day high but did not manage to hold it into the close. The index is making a bounce from the 30 day moving average with similarly weak indicators. MACD is again right at the zero line while stochastic is basically ranging sideways and with %K and %D not yet even touching, much less crossing. It looks like the index wants to rally again but just needs a push across the line.


The tech heavy Nasdaq Composite took third spot today with a gain of 0.56%. This index is also in mid bounce, from the 30 day EMA and a longer term area of support. Today's action was a lot less decisive than the blue chips or the trannies, forming a spinning top candle stick. Traders are likely waiting for the earnings report from Intel, world's largest chip maker, before making any decisions about market direction. The indicators here are bearish in the near term but have peaked and/or rolled over in the near term. A retest of resistance at the current 14 year high just shy of 4,500 looks probable even without earnings season but I think there is no coincidence here. Intel is scheduled to report after the bell tomorrow, along with Yahoo!, so trading in this index may be muted until late day or after the close, at which time I think things will heat up considerably. Current support is along the moving average near 4,440.


The SPX was today's laggard with a 0.46% gain. The broad index is also bouncing higher from the 30 day EMA but with a little conviction. The index formed a white bodied candle, not remarkably large but big enough to be more than a spinning top. The indicators are also bearish in the near term with momentum peaking but stochastic is not yet rolling over. In the short term there is some divergence between the indicators and price but the sell off last Thursday helped to relieve overbought near term conditions. With the bounce in play I would expect to see the index at least retest resistance at the current all time high with the chance of it gaining momentum for a break through. Earnings, and data, hard to say which will be more important, maybe the way the two combine for future out look, will be key. A failure to break above this level could result in a near to short term double top, based on earnings or economic outlook, with a target at or near the long term trend line around 1900/1925.


The indices appear to be in synch, at least in the near term to short term. This doesn't happen as often as you might think and could prelude a sharper than normal movement, in either direction. All four that I track are bouncing from the short term moving average with indicators that are in early stages of rolling into a trend following signal. This is all happening while they are facing long, short or near term resistance in the form of an all time or long time high. Except for the Dow Jones Transports which set a new high today. The transports are a historical leader of the markets and have been doing a fine job of it recently as well. If earnings, guidance and economic data point to continued growth then I expect to see new highs for all the indices.

Until then, remember the trend!

Thomas Hughes