The market was once again impacted by geopolitics but earnings prospects helped lift the indices by day's end.

Introduction

Trading was once again impacted by geopolitical tensions. In eastern Europe the stand off over the shot down Malay airlines flight drags on as pro-Russian militants keep international teams from the site. The details are still unclear but mounting evidence puts the blame on a missile fired by those same pro-Russian militants. Asian and European indices were both hammered by fears the situation could spin out of control while in Japan trading was suspended for a national holiday. The most heavily affected being the German DAX with a -1.11% drop. Here at home early trading was indicated lower as the day and week began. The futures trade had the SPX down about -5 points with some fluctuation throughout the pre market session.

Market Statistics

There were no economic reports today and few this week but the lack went unnoticed in the face of the earnings onslaught scheduled over the next couple of days. Today only a few dozen reports were released but there are hundreds scheduled for the week. By the Friday more than 1/2 of all S&P companies will have reported. With this mornings additions earnings growth among them has risen to 6.9%, above the expectation and an improvement from last week.

Even with the improvement to earnings growth the market was not able to open positive. Trading was quiet over the first hour, the SPX hovered in a tight range just above 1975, about 5 points lower than last week's close. Almost exactly at 10:30AM the market began to extended the drop, doubling the early losses, until hitting intraday bottom around 10:45, coincident with a statement from President Obama concerning the downing of Malay Airlines Flight 17. From that point on the market was able to regain its footing and climb higher but was not able to make it into positive territory.

Economic Calendar

The Economy

There is very little economic data this week and none today save two unofficial survey's of the economy. First up is Moody's Survey Of Business Confidence conducted by Mark Zandi. According to his results “U.S. business confidence remains buoyant... Sentiment in the U.S. is consistent with an economy that is expanding well above its potential... Sentiment is strong across the board, but hiring intentions are especially robust; more than half of respondents to the survey are hiring. Sentiment is less upbeat in the rest of the world, especially in South America, where it is weakest.” The full report can be read at Moody's Analytics.

The National Association Of Business Economists released its survey of business. Among those participating 57% saw an increase of business in the second quarter. Another 36% of business say they are hiring more workers while a slightly larger 43% say they are increasing wages.

Other data released this week includes CPI and existing home sales tomorrow. CPI is expected to rise about 0.4%, in line with last months rise of 0.4%. Core CPI is expected to rise a more modest 0.2%. Existing home sales are expected to rise to just shy of 5 million. Later in the week, along with the usual mortgage index, energy inventories and jobless claims there will be new home sales on Thursday and Durable goods on Friday. New homes sales are expected to fall about -25,000 to around 475,000. Durable goods orders are expected to rise 0.3% but 0.8% ex-transportation. Most importantly though is what is on the calendar for next week, the FOMC meeting Tuesday and the first estimate for 2nd quarter GDP on Wednesday.

The Oil Index

Oil prices surged today as the Ukraine situation added some fear to the market while other areas of concern continue to recede from importance. The Iraq crisis is no longer making headlines and in Libya production is still ramping up even though there has been some renewed violence there as well. WTI climbed about 1.5% in today's session while prices for Brent did not see quite so large a gain. WTI is now trading back above $104.

The Oil Index traded lower today, in line with the general market, but remains above long term support. The index is now sitting on that support with indicators that may be setting up for a trend following signal. The long term trend is still up and stochastic has already given off the early signal. Bearish momentum is declining and could return to bullishness very soon. This could be another week of sideways trading and consolidation for the index as traders await earnings due at the end of the month. In the near term Ukraine is the biggest concern followed by economic data, earnings and Libya, not necessarily in that order. A break below the current support level, coincident with previous long term resistance dating back to the 2008 market crash, would have down side targets near 1,600 and 1,550.


The Gold Index

Gold prices traded higher today but only by a few dollars. Prices were lifted by the threat of rising geo political tensions but failed to make a significant move. Today's action tested $1315 early in the morning but failed to break through. Flight to safety is the only thing I can see keeping gold at the current levels. Nothing has changed to the underlying fundamentals except that the future of interest rate hikes is still in question. I can't help but think that gold will tumble again once the current geo-political fears subside.

The Gold Index traded lower today, opposite the underlying metal, losing about 1%. The index is falling inside a resistance zone with bearish indicators. Momentum has crossed the zero line after a week of neutral momentum while stochastic is moving lower in the longer term and rolling into bearishness in the nearer term. If %K confirms the downward trending %D line on the stochastic indicator this would be a strong signal in the longer term down trend. Near term targets are only a few points lower, along the $100 level and just below at the short term moving average. If a break of these supports occurs then longer term targets around $95 and $90 would be in play. There is risk of gold prices rising, and lifting the Gold Index, if the situation in the Ukraine deteriorates further or other fear inducing factors emerge. However, the longer term fundamentals that have brought gold prices to where they are persist as does the longer term down trend in the Gold Index.


In The News, Story Stocks and Earnings

Here's a quick recap of headlines in the news this morning. First, GM is telling Cadillac dealers to stop selling CTS models until they can come up with a fix for the ignition switch problem. As of yet they have not been able to correct it.

The fight between Valeant and Allergan has taken on a playground overtone as Allergan makes a complaint to the SEC. The company alleges that Valeant is “cherry picking data” in order to paint a negative picture of the company. This is after Valeant made its claims that Allergan was misleading investors.

21st Century Fox may sell some of its European assets in order to raise money for its Time Warner bid. The original offer, made last week, was rejected.

OAO Severstal, Russian owned steel giant, agrees to sell two of its plants to us companies. The companies are Steel Dynamics and AK Steel Holding Corporation. The deal is worth $2.3 billion and marks Severstal's departure from the US. This move may be in response to US sanction althought the steel industry has yet to be targeted.

Elliot Management has taken a $1 billion, or 2%, stake in data storage company EMC. The firm is looking to break up EMC in order to unlock value. EMC shares jumped more than 5% today and were able to break above long term resistance.


A new scandal centered around food safety broke in China over the weekend. A supplier of meat to Chinese based McDonald's and Yum! Brands stores was caught selling out of date meat to the two companies. The meat was sold by a Shanghai based subsidiary of a US supplier. This is just after Yum reported earnings growth of 19% based on a 15% increase of comp store sales in China. Shares of Yum fell hard last week when the earnings report was released and fell again today. Shares fell close to 4% on heavy volume and are now trading near a potential long term support line. This scandal may have provided an entry into Yum but it would be wise to wait for some signs of support before pulling the trigger. This is not the first time there has been an issue like this, Yum and McDonald's have bounced back, it will just take some time.


McDonald's is scheduled to release earnings this week, on Thursday. Yum's report last week leads me to think that MCD could produce similar results in China, if it is enough to get investors into the stock is a different question. Today's news was not good for MCD and drove stock prices 1.32% lower, extending a drop that began last week. The stock is now sitting on a potential support level with declining indicators. Current support is the $97.50 level but it does look like it will be tested. As I said before, the news today may have provided an entry into this name but more sign of support is needed. If MCD breaks current support the next target is around the $95 level.


Halliburton rose 1.5% to $72 in premarket trading after the oil services company reported second-quarter earnings that met expectations and revenue that exceeded forecasts. Profit for the quarter rose to $776 million, or 91 cents a share, from from $623 million, or 73 cents a share in the prior comparable period. The stock made a new intraday all time high but was not able to hold it into the close. The trend in the stock is bullish but the indicators are bearish at this time. They are rolling over into a potential trend following entry signal but it is not confirmed as yet. One analyst has already upped the target for this stock which may provide additional catalyst moving forward.


Netflix reported earnings after the bell but the stock was moving long before that. Shares of the stock traded as much as 2.5% higher during the day and extended those gains after the bell. Netflix met earnings expectations with EPS of $1.15 but beat on the top line with revenue of $1.34 billion. The really important number for investors in the stock is the subscriber number which topped 50 million for the first time. The company says that Orange Is The New Black was a driver of the gains. Netflix is now bouncing from the short term moving average and approaching resistance at the current all time high near $475.


Chipolte Mexican Grill also reported after the bell. The fast casual chain reported top and bottom line numbers far beyond the expectations driven on a positive pass through of price increases and a +17% gain in comp store sales. The company reported earnings of $3.50 versus the expectations of $3.08. Revenue also topped expectations sending shares more than 8% higher in after hours trading.

The Indices

The Dow Jones Transportaton Average led today's losses although the drop was small. The index closed with a loss of only -0.29% after trading lower on an intraday basis. The index has been consolidating between the current all time high and the rising short term 30 day EMA since breaking out of a flag pattern at the beginning of the month. The indicators are bullish but weak and close to neutral when looking back over the past few weeks. The MACD peaks are all small and very shallow while stochastic is obviously trending to the side. The market is waiting for something, earnings is part of it but next weeks FOMC, GDP estimate and new jobs data are a bigger part of it I think. There may be more of this side to side backing and filling until then.


The blue chip Dow Jones Industrial Average also fell by more than a quarter percent today, losing -0.28%. The index fell below 17,000 for a brief time, testing support, before moving back up to today's closing level. Near term support held and is aided by the short term moving average which is just below. Looking at the moving average it appears to be trending higher in a near straight line that is suggestive to me of steady buying. The indicators are mildly bearish but more neutral than not. This is good provided the index maintains support levels as it allows the market to cool off and set up for stronger trend following signals. Earnings are still a concern but today's reports have helped to alleviate some of that worry.


The SPX did not quite lose a quarter percent, falling -0.23%. The index is also trending in a sideways range, consolidating above near term support and below current all time highs. Geo politics are helping to keep resistance in place but the rising tide of earnings is pushing up against that resistance. This week and next are important for the index in terms of earnings, but also for economic data and the FOMC. The index has been in this range for about a month now and it is narrowing as the short term moving average pushes prices against the upper boundary. It is possible for the index to continue on in this manner for a few more days, maybe a week but a break of one or the other is eminent. The indicators are bearish at this time but over sold in the near term. A break below the moving average would find support at the lower end of the current trading range and then just below that at the long term trend line.


The tech heavy Nasdaq lost the least today, only -0.17%. The index opened lower and closed lower but was able to create a white candle at the close. The index appears to be bouncing, or about to bounce, from long term support. Long term support on this chart is coincident with the short term moving average. The indicators are more bearish here than with the other indices but still indicate there is some support at the current levels. In the end it will come down to earnings and tomorrow is going to be a big day. There are too many to list but one to take note of will be Apple, after the bell.


Global events are plenty scary, enough to grab the markets attention but not so scary as to impact earnings or economic outlook. The market reaction last Friday and today show that there are buyers waiting for stocks when prices fall. Whether or not the buyers stick around will come down to earnings, the FOMC and the economic data. Earnings are rolling in just fine, the economic trends are up and the FOMC sees growth through the end of the year. If this has changed we will find out very soon. Either this week with earnings or next week from the Fed and/or the data. For now I am still a buyer on the dips.

Until then, remember the trend!

Thomas Hughes