The market continues to retreat while we wait on data, next week's FOMC meeting and the next earnings reporting season.

Introduction

Strong NFP numbers and positive outlook were not enough to support the market today. Weak outlook for 2nd quarter earnings and global woe are weighing down the market while we wait on even more data, an FOMC meeting, the next round of earnings and a triple witching options expiration at the end of next week. Except for a few earnings and economic reports most of this anticipation will not be satisfied until next week or later, leaving this week relatively light on market moving events. There was no official US economic data released today and only a handful of earnings reports.

Early trading was influenced by data from China and Japan. Chinese import data shows a -17% decline, not a good sign of growth in that country but one that raised hopes of stimulus once again. In Japan GDP estimates for the 1st quarter were revised higher, to 3.9%, in evidence of the success of ongoing stimulus measures there. Indices in the region closed mostly mixed although the mainland Chinese Shang Hai index gained over 2%.

Markets closed lower in Europe as well. The close of the G7 meeting leaves Greece in focus as well as sanctions against Russia. The general consensus is that Greece is running out of time very quickly so expect news to come from that arena at any time. The G7 leaders also reaffirm current sanctions against Russia and threatened more if Putin didn't get back in line.

Market Statistics

Futures were negative for most of the morning but indicating a flat open. The trade weakened going into the opening bell but only slightly with most of the major indices posting initial losses of less than -0.1%. The first 15 minutes of trading were a little volatile with some up and down action testing resistance at last week's closing prices. This didn't last long and left the indices trending lower into the early afternoon. The market hit today's bottom a little after 1:30 and after an hour or so of sideways action moved up to recapture about half of today's losses. The bounce did not find traction however ad the market moved back down to set a new intra-day low by the close of today's trading.

Economic Calendar

The Economy

No data today and not whole lot for the week but it will be important nonetheless. Tomorrow is Wholesale Inventories and JOLTs job openings. Inventories are expected to rise, look for job openings and quits to remain steady or strengthen. Wednesday is Treasury Budget. Thursday Initial Claims, Retail Sales, Import/Export Prices and Business Inventories. Friday is PPI and Michigan Sentiment. I'm looking for PPI to be the big move of the week. Last month it was weaker than expected and precipitated a bottom in the dollar and a top in gold. This month it is expected to grow by at least 0.4% so could spark the opposite move.

Moody's Survey Of Business Confidence remains near record high levels. The index reading jumped by 0.8 points to hit 44.1, just shy of the all-time high set in April. According to Moody's chief economist Mark Zandi global businesses remain positive about current conditions and future expectations. He takes note of a surge in expectations for the second half that runs counter to recent weakness and declining estimates for 2nd quarter quarter growth.


The Oil Index

Oil prices fell more than -1.5% today as OPEC's decision to keep pumping was underscored by a report today China's month to month imports of oil declined by -26%. The combination is evidence of the ongoing supply/demand imbalance that could keep oil prices under pressure. At the same time there are plenty of hot spots in the middle east to help keep prices supported, as well as the upcoming Iranian Nuclear deal deadline.

The Oil Index fell by only a half percent in today's action but continues to exhibit signs the near term decline is reaching bottom. Momentum in the downward movement is in decline and diverging from the current low, an indication of a potential trough if not actual support along the long term trend line. Stochastic is still weak and below the upper signal line but is oversold in relation of the long term trend line. The index could continue to drift lower with a target near the range of 1,250 to 1,300.


The Gold Index

Gold prices got a little lift today as the dollar weakened. Gold gained about a half percent to trade above $1170. Prices have tested support due to the dollars recent rebound but appear to remain range bound ahead of the FOMC meeting and PPI data later this week. Looking back to last month and the PPI data, surprising low producer level inflation helped the dollar to bottom and gold to top so I will be looking for some kind of similar move on Friday. PPI is expected to rise by roughly .4%, up from last month's decline of -0.4%. Even if it only comes as expected it will raise expectations for the Fed rate hike and could strengthen the dollar, but will also put inflation firmly back on the table and could support gold prices at the same time.

The gold miners ETF GDX gained over a full percent in today's session. Today's candle is little more than a spinning top and represents sideways movement from Friday's candle. The indicators remain bearish but with MACD forming only very weak peaks the strength of this break of this dip is questionable. Stochastic is also weak and below and lower signal line but like could be seen as oversold in light of recent price action. Gold prices are the biggest driver of this index so Friday could be a big day for it as well. If gold prices are unable to hold support then the ETF could retreat to it's long term low near $17.50.


In The News, Story Stocks and Earnings

There was no report from Factset this week. Earnings season begins in exactly one month with Alcoa on July 8th. The aluminum giant is expected report earnings of $0.25, a 10% decline from last quarter's $0.28. The company has been faced with currency headwinds and sluggish demand with the added twist of plunging bauxite prices. I say twist because it means lower prices for finished alumina but may also lower input prices for since close to 1/3 of Alcoa's bauxite comes from outside sources. Another factor thatmay affect the bottom line is potential savings in fuel costs. The stock has been trending lower since February and made a new low today. Share prices are now near the middle of the 5 year trading range and a new 15 month low.


McDonald's released global comp store sales this morning and surprised with a better than expected decline. The company reported global comps down by -0.3%, consensus was closer to -1.0%. This was led by decline in Asia/Pacific/Africa of -3.2% but offset by gains in Europe, 2.2%. US comps fell by -2.2%, less than expected. MCD next reports earnings at the end of July and is expected to show an increase over the last quarter. Today the stock lost -0.15%.


Sears reported earnings today. The company reported a loss of -$2.85 per share, much better than expected. Sales for Sears stores declined by -7% in the quarter, in the Kmart line of stores sales declined by -14%. The company also reported the planned spin-off of a large number of stores into a REIT. Management says the company is making progress on its turnaround plans and well positioned to continue doing so. Shares of the stock lost -4.27% in today's session.


Apple held its annual developers conference today. Tim Cook revealed a number of new advancements including updates to iOS 9, a new operating system called el Capitan, updates to Siri and how it interfaces with users, new native apps for the watch and some new functionality for the iPad. Shares of the stock waffled during the conference but ended the day with a loss of -0.74%.


The Indices

The market moved lower today, not so much in a full rout of the bulls but more like a measured retreat. After an initial battle just after the open today's decline was steady and only interrupted by a single bounce. This bounce did not find much traction and soon led to additional selling and new intra-day low.

Today's move was led by the Dow Jones Transportation Average and a loss of over -2.0%. Today's action created a long black candle and confirms resistance at once was support. This move is ominous for the bulls as it could lead to a much deeper correction/reversal for the index but I am still not quite ready to go full bear just yet. The 8,250 level could well prove to provide support. The indicators are still consistent with support on the long term weekly charts and the 2.5 year uptrend. In that light cuurrent action could be swinging into a trend following entry. Until then the index looks set to test 8,250 and is likely to remain weak until earnings expectations in the sector get sorted out.


The NASDAQ Composite made the next largest decline, -0.95, less than half that of the transports. The techs have broken back below support at the 1999 all-time high and the short term moving average with rapidly weakening indicators. Both MACD and stochastic are moving lower and gaining momentum with potential support at 5,000 and a target if that fails near the long term trend line. A dip to the trend line would be a near 5% correction. The long term trend remains up so any dips remain potential buying opportunities.


The S&P 500 comes in third today with a loss of -0.65%. The broad market created a black candle of medium size extending its drop from the 2,093 support line. Although there was a bounce from support in mid-day action the index closed at the low of today's session. The move has taken it down to 2,080 with next possible support near 2,060. The indicators are bearish and gaining momentum so it looks like a deeper correction is on the way. The index has already broken one trend line and is aimed at another, a correction to this line would be just over 7% from the current all-time high, near the 2,000. Between now and that eventuality are potential support at 2060,2050 and 2020.


The Dow Jones Industrial Average made the smallest decline today, only -0.46%. Today's action created a black candle with no lower shadow in extension of the drop from 18,000. The indicators are bearish and gaining strength with a potential support target near 17,600. The index remains well above the long term trend line so any signs of support are potential buying opportunities. A break below 17,600 has a target near the long term trend line around 17,400.


The indices continue to fall through shorter term support levels with longer term support levels in sight. The long term trends remain up, in the indices and the economy but near term expectations for earnings remain poor so a deeper correction appears to be in the offing. It is very possible this correction will take all the indices, not just the transports, back to their trend lines before earnings season even starts unless something happens to change the outlook.

There is not a lot on the schedule to support prices this week but there are some key reports to keep an eye on. Business Inventories, Wholesale inventories, Retail Sales and PPI could all affect expectations for 2nd quarter GDP and they will assuredly affect FOMC rate hike speculation what the FOMC does at their meeting next week.

In the near term it looks like we're in correction with targets near long term support levels. It's unclear just how deep the correction will be but unless the outlook for the end of the year and next year changes I will be buying on the dip.

Until then, remember the trend!

Thomas Hughes