Greece deal hopes fade in the wake of comments the latest effort to reach a deal does not meet approval.

Introduction

Greece, the Greek saga has been drawn out once again as the latest 11th hour attempt to reach an agreement with creditors appears to be falling apart. The latest word is that the Monday proposal, offered by Greece on Monday and first received with open arms by the creditors, is not enough. This news comes from sources close to the negotiations and sent the market ducking for cover. The report came too late to affect stocks in Asia which rallied, led by the Nikkei's march to a new 18 year high. The effect was felt worse in Europe where indices fell nearly -1% before finding support.

Market Statistics

Futures trading was in the red from the start of today's early pre-opening session. The indices were all indicated to open lower but the losses were marginal. News, other than Greece, had little affect on early trading which held fairly steady into the opening bell. The indices opened as expected posting mild losses near -0.10% within the first hour.

By 11:30 the indices had managed to move lower, led by the transports -1.35% decline, but on average posting losses in the range of -0.25%. Declines continued into the mid-afternoon, amplified by Carl Icahn's comments about the market being overheated, at which time the indices were down by roughly -0.75%. Selling pressure persisted throughout the day and left the indices near their lows at the close of the day.

Economic Calendar

The Economy

Two bits of economic data today, mortgage applications and the final revision to 1st quarter GDP. Mortgage applications rose by 1.6%, posting a strong gain from last week's decline of -5.5%. The jump was driven by a recent dip in mortgage rates which drove a rise in new buyers and refinances. This, along with better than expected existing and new home sales, points to increased activity and expansion in the housing sector.


GDP, 1st quarter GDP was revised higher, in line with expectations, to -0.2%. This is up a half percent from the previous estimate of -0.7%. The current estimate is based on more complete import/export data which shows that exports decreased less and imports increased more than previously thought. Along with this is an slightly larger increase in Personal Income Expenditures.

The Oil Index

The tug of war over oil prices wages on. Prices got a lift in early trading on the expectation we would see another decline in US stockpiles. Aiding the early lift were signs the US rig count decline has hit bottom, the latest report shows ND rigs holding steady at 77, the third week of stable levels since hitting the low of 76. The early pop, which took WTI over $61, reversed when supplies were reported to have fallen more than expected. This news, otherwise bullish, was tempered by an unexpectedly large rise, double expectations, of gasoline which only served to shift supply, not diminish them. WTI fell by more than -1.25% to trade near $60.

The Oil Index continues to show sign of a potentially strong trend following movement. Today the index traded to the upside, wrestling with near term resistance along the short term moving average. Price action continues to be supported by the indicators which are consistent with a trend following entry. A break above the moving average and the 38.2% retracement level which is just above the EMA would be bullish and carries a target near 1,400 in the near term. Oil prices will continue to have day to day impact on the index but so long as they remain at levels conducive to fulfilling forward earnings outlook should provide long term support.


The Gold Index

Gold prices fell about -0.30% as the market waits on Greece and digested GDP data. The data reveals the economy did not decline as much as expected in the 1st quarter, confirming outlook for economic expansion and the eventuality of rising inflation. It also confirmed expectations for an FOMC rate hike this year. Gold prices are now trading near $1173 and at a three week low. This level has been providing support for 3 months, I see no reason for that to end now.

The gold miners traded up in today's action creating a small bodied white candle just above my support line. Support appears to be forming near $18.50 and is supported by the indicators. MACD momentum remains bearish but the peaks are divergent from price action in the near and short term. Stochastic %K is moving lower and below %D, consistent with a test of support, but %D is on the rise and has crossed above the lower signal line. The sector remains range bound but looks good for a possible rise to the upper end, near $20 or $21, provided gold prices do not fall below support levels near $1170.


In The News, Story Stocks and Earnings

Lennar Corp reported earnings before the bell. The builder of residential homes reported a beat on both the top and bottom lines, posting EPS of $0.79 on revenue of $2.4 billion. Expectations had earnings in the range of $0.65 on revenue of only $2.4 billion. The best news is an 18% rise in new orders and comments from execs expecting "strong future sales". The one bad note was a slight drop in margins due to rising land costs but that was overlooked in favor of strong sales expectations. Shares of the stock rose more than 8% in the pre-market session, opened with a large gap and proceeded to fall from there throughout the day. Selling pressure did not completely overcome buyers leaving the stock up by 4.5%.


The XHB Home Builders Spyder moved up to set a new 8+ year high, a high not seen since the housing bubble pre-2008 financial crisis. Today's action opened with gap driven on momentum from Lennar and others such as KB Homes who reported a 57% increase in back-log and future orders last week. Early action was bullish, pushing prices higher after making a small gap at the open. Late day selling reversed the early rally, resulting in a black candle but leaving the ETF with a small gain for the day. The indicators are bullish but may be indicating a near term peak, MACD retreated with today's action and stochastic is at the upper signal line with near term %K moving lower.


Monsanto, the global farming technology behemoth, reported better than expected earnings this morning. EPS of $2.39 was far ahead of consensus estimates near $2.05 but came on lighter than expected revenue. The company went on to affirm guidance near the low end of the previously stated range, in line with consensus estimates, but did not provide investors with much hope. Shares of the stock tanked on the news, falling nearly 5%, to trade just above the 12 month low.


Bed, Bath&Beyond reported after the bell. Expectations for EPS of $0.94 were barely missed, actual EPS is $0.93, on revenue in line with expectations. Comp store sales are running just over 2% and within the range projected by management for the year. This is up from a 0.4% comp store increase for the same quarter last year and reflect a negative impact from dollar conversion. Shares of the stock fell -2% in after hours trading following a day of trading right around the moving average.


The Indices

The market began a slow decline this morning that slowly extended itself throughout the day. Although selling lasted throughout the day there was none of the feel of imminent doom or panic selling. Today's losses were led by the Dow Jones Transportation Average which posted a decline more than double the next biggest loser. Today's action carried the transports down by -1.86% and back to the bottom of the recent 10% correction. This move is confirming resistance at the short term moving average but did not break long term support. The indicators are still consistent with a bullish entry in line with the underlying trend so today's drop looks more like an entry point that it does the precursor to decline. Support is at 8,250, resistance is at 8,500.


The Dow Jones Industrial Average made the next largest decline, -0.96%, a full point less than the transports. Today's move broke below the short term moving average and may indicate a near term peak but the underlying trend remains bullish. Declining momentum may lead to a further pullback in the near term with possible target near 17,750 and the bottom of the 5 month tradindig range. Greece may influence trading within the range but data and earnings will be the determining factor long term. The index may remain range bound until earnings season starts, about 2.5 weeks away, unless data changes outlook or Greece defaults/deals with its creditors.


The NASDAQ Composite fell -0.73% and could be returning to the moving average. The index flirted with a new high today, the fifth time since breaking out last week, and may have gotten ahead of the broader market. The indicators remain bullish so any pullback would be buying opportunity. Current support target is the 30 day moving average near the 5,050 level and then just below that near 5,025 and the previous all time closing high.


The S&P 500 fell -0.74% in a move confirming resistance and halted by support. Today's action confirms the underside of the broken up trend line as resistance, strength as yet undetermined. It also helps confirm the break above the moving average and support along the moving average, consistent with the trend following signal indicated by MACD and stochastic. This signal is a trend following entry with target near 2,150. Support target is the short term moving average, near 2,106.


Today's action was all Greece, and maybe a little Carl Icahn. Aside from headline fears over Greece the data is good, not strong and not weak but leading to growth, the earnings are better than expected and outlook to the end of the year remains positive. In the short term 2nd quarter earnings have us in a holding pattern, in the long term growth outlook has us in a bull market. In the near term Greece, its creditors, the bail-out deal and media glam have the market's attention. Near term news is going to keep the market churning until negative headlines are gone, so long as the economic trends and earnings expectations are positive I remain a bull.

Until then, remember the trend!

Thomas Hughes