Global markets slip on the results of Greece' no-vote to austerity measures.

Introduction

Somewhat surprisingly Greece voted no in the referendum on Sunday and sent global markets into a nosedive. The nosedive wasn't unexpected, it was the no vote that was a little surprising to me. I think others felt the same, Indices from Asia to the Americas fell on the news, with one notable exception. The mainland Chinese Shang Hai index gained 2.5% following announcements from the government they would be taking measures to help support the local market and long term investors.

Here's a quick recap of Greek developments today. Following the vote Greek finance minister Varoufakis resigned, apparently from pressure from PM Tsipras in order to help smooth out the next step he plans to take. The Greek banks remain closed and the limit for withdrawal has been lowered to 50 euros, the ECB says no change to its help with liquidity, and there no sign of when they may reopen. PM Tsipras has announced he will be coming to the the negotiating table with a new proposal tomorrow. Angela Merkel says any new offer must be on the table this week and seems willing to talk. The IMF says they stand ready to aid Greece, but hands are tied until they get current with loan obligations. Tomorrow a summit of creditors is scheduled that may also be reviewing a Greek proposal.

Market Statistics

US index futures took a big hit in overnight trading. The Dow was indicated down by as much as 200 points at one time but that moderated into the morning hours. The early pre-market session saw declines of -153 for the Dow Jones Industrials, -17 for the S&P 500 and -35 for the NASDAQ. These levels held into the opening bell and precipitated a -20 point drop for the SPX in the first few minutes of open trading.

The initial sell-off did not move quite as low as the futures indicated. Support came into the market within the first 5 minutes of trading and drove the indices back to break even and then into positive territory by 11AM. The push into positive territory brought the bears back into the action. They were able to drive the indices back below break-even and eventually down near the early low. These lows turned out to be support and sparked another bounce that lasted into the close of trading. The market was able to recover most of the daily loss but not all, closing with losses in the range of -0.50%.

Economic Calendar

The Economy

Only one economic release today, ISM non-manufacturing index. The index rose, as expected, to 56 from a previous 55.7. All segments within the report are expansionary although labor market expansion has slowed. The business index gained 2% to 61.5, new orders rose 0.4% to 58.3 and employment fell -2.6% to 52.7. Prices paid also remain above the expansionary 50 mark but have moderated their rate of pace.

Moody's Survey of Business Confidence slipped -1.5 points to 40.8. This is the fifth week of decline but the index remains near recent all time highs and above levels seen during the 2008 housing bubble. This week's decline may be explained away by the holiday shortened week but we will have to wait until next week to know for sure. According to Moody's chief economist Mark Zandi business confidence remains strong with "robust" employment and business spending in the US.

According to FactSet the expected blended rate for S&P 500 2nd quarter earnings growth is -4.5%. This is slightly higher than -4.6% last week but still well below the -2.1% predicted at the beginning of the quarter. So far 21 companies have reported with 14 beating estimates for EPS and 10 beating estimates for earnings. There are 3 companies reporting this week, including Alcoa. Looking at the expectations ex-energy the expected growth rate is +1.9% and could go as high as +6% if the four year averages hold true. Third quarter earnings are also still expected to show mild decline but I am looking for that to change over the next few weeks as 2nd quarter earnings are released. The full year 2015 is expected to see growth of 1.5%, 2016 is expected to be near 11.9%, both of these estimates have fallen in the last week.

The Oil Index

Oil prices finally succumbed to the pressures of over supply and under demand. WTI and Brent both fell, WTI nearly -7.5%, Brent just over -6%, as the summer driving season peaks, rig counts increase and Iran supply hovers on the edge of the market. The Greece referendum and surprise moves in China may have been the triggers and helped to extend the drop but the Iran nuclear deal has the biggest impact on supply/demand issues driving prices, after counting in high storage production levels around the world. The Iran deal could add a million barrels of supply to an already well supplied market so tomorrow's deadline is being watched closely. Latest reports say no deal is at hand and the deadline may be extended.

The oil sector took a hit but not near as bad as you might think, given a 6% drop in the underlying commodity. The Oil Index lost only about -1.25% after a much lower opening and in the face of the late day route in the oil pits. Today's action opened below the long term trend line and created a white candle that moved up, counter to the day long slide in oil. The indicators are pointing lower in the near term suggesting that support will be tested further with a possible fall below the trend line. Looking out over the short to long term the indicators remain consistent with uptrend and potential support along the trend line. Falling oil prices and 2nd quarter earnings outlook, along with global headlines, may continue to put pressure on gold as we get into earnings season. Outlook into the end of this year and next remains positive so I think the trend will remain up making today's drop below trend an attractive entry point. JPMorgan may agree, they upgraded BP from neutral to overweight.


The Gold Index

Gold prices rose today as flight to safety trades and long term outlook overpowered the affects of a stronger dollar. Gold rose nearly a full percent in today's action to move up from last week's low. Prices remain above the 4 month low and are currently bouncing higher within the range. The play by play with Greece will continue to affect day to day prices but the big catalyst for the week is likely to be the FOMC minutes on Wednesday. I still see a win-win scenario for bulls in that a hint of later rate hikes is likely to weaken the dollar and lift gold, and a hint of sooner rate hikes implies inflation and could wind up lifting gold.

The Gold Miners got a lift from today's rise in gold prices. The miners ETF GDX gained nearly 2% in a move that came up to challenge resistance at $18. This resistance is coincident with the bottom of both the support line drawn from the March 31st bottom and my rising trend line. Today's action created a strong white candle that formed a bullish piercing pattern swallowing up the prior three days of candles. The indicators are mixed. MACD is bearish, weak and nearing the zero line while stochastic is has just made a bullish crossover with %D pointing lower and extremely oversold. A break above $18 would help to confirm support and my longer term bullish stance on the sector. If so this move could take the index toward the to of the range near $20. A failure could take the it down to the long term low near $16. Randgold Resources received an upgrade from hold to buy which could help add lift to the sector.


In The News, Story Stocks and Earnings

Amazon made headlines early in the day as it tries to create its own holiday. The online retail behemoth is offering a host of deals, scheduled for July 15th, and targeted at its Prime customers. According to reports the company is expecting to "bury Black Friday" with more and expanded deals from the traditional shopping holiday. Non Prime members can sign up for a trial and get access to the deal. This move is not surprising, it follows in the footsteps of Ali Baba's highly successful Singles Day and just about every other mass market holiday in the US. I'm sure it will be a success, they will sell billions of dollars of merchandise, how it will impact business going forward is being debated. The news may have helped the stock in today's session, it only fell about a half percent and held above the short term moving average.


Alcoa reports earnings on Wednesday and kicks off the start of the earnings reporting season. The aluminum giant is not expected to produce stellar results as it has been facing strong headwinds. Number one is affect of strong dollar and currency conversions which is expected to be large. Along with this is tepid demand, down to +6% this year from +9% last year. The consensus estimate is EPS of $0.23, down from the previous quarter but up from the same quarter last year. Today the stock fell about -1% and set a new 15 month low.


Kuerig Green Mountain got another downgrade today, this time from Suntrust. Their target is in line with previous downgrades putting fair value in the rang of $70. The stock fell nearly -4% on the news hitting a new 18 month low. The indicators are weak and confirming further downside with a bearish stochastic crossover and strengthening bearish momentum. GMCR reports earnings in one month on August 5th.


PriceSmart is scheduled to report on Thursday. The membership discount retailer is scheduled to report $0.70, in line with the previous quarter. The last quarter report saw a +11% increase in sales that has been followed up by double digit increases in monthly sales each month since. The company has also announced the opening of a new club store in Nicaragua of all places that should help the bottom line. Shares of the stock lost a little over -0.60% in today's session, creating a small doji/spinning top about 2% below potential resistance.


The Indices

The bulls and bears were fighting it out until the end of the day but the bears were dominant. Today's move was led by the transports, which closed with a loss of -0.54%. The sector remains under pressure despite upgrades and low oil prices and set a new 9 month low. Today's action created a long-legged candle, not a doji but clearly a sign of mixed emotions concerning the market. There is some indication of support around the 8,050 level and just above 8,000 but the indicators are still pointing lower so those level could be easily reached and/or surpassed. Downside target should the index begin to move lower and break 8,000 is 7,750.


The S&P 500 was the next largest decliner in today's session. The broad market fell -0.39% in a move that tested support at last week's low and bounced back. The index created a hammer-like candle with small body and long lower shadow that at once highlights downside pressures carrying over from last week and support near 2,060 at the same time. The indicators are pointing lower at this time, suggesting that support levels could be tested again in the least. Momentum remains weak and stochastic %K is bouncing so support in the 2,050-2,060 range looks like it could be strong. A break below here could lead to correction to trend with a target near 2,000.


The NASDAQ Composite shed -0.34%, coming third in today's decline. The tech heavy index created a white bodied candle with a long white wick between my long term trend line and the previous all time high near 5,042. Today's action is the 5th since falling below the short term moving average and the described range. The index appears to be in a little consolidation that could go either way. A break below the trend line could go as low 4,750 in the near to short term with a break above resistance finding next resistance near 5,160. The indicators are pointing lower in the near term but remain consistent with the ongoing up trend over the short to long term. Tomorrow may also be affected by an after hours guidance revision, negative, made by AMD. The company now sees revenue down -8% rather than the previously expected -3%.


The Dow Jones Industrial Average fell only -0.25% after it tested support near 17,600. The blue chips created a black candle falling from previous support now resistance but were halted by last week's low. This low is coincident with the March lows and is looking like a possible bottom to the near term down draft in the market. The indicators remain bearish as with the other indicators but also show signs of possible support in declining bearish MACD and bouncing %K on stochastic. Support looks likely to be tested with a possible break through carrying a target near the long term trend line near 17,500.


The bulls tried to bounce back from today's drop but just couldn't do it. The catalyst was Greek referendum but I think that was more likely an excuse than a real scare. In other words, I think it no coincidence the market has been selling off over the past week with earnings season set to start two days from now. Greece, Iran and China are all geopolitical in nature, all have potential to affect the US economy but are also issues that have been plaguing us for years, if not longer. In that time none of them has caused a global melt-down and all the while we have been recovering and expanding. News may help to push the indices lower in the near term but long term outlook remains bullish and in line with the trends.

We won't get a lot of data or earnings this week but by the end of next week we should have a pretty good picture of how earnings season is going to be and whether or not the summer is seeing the expansion we have been looking for. This week the FOMC minutes is top on my list of known events, I say known eents because Greece and maybe Iran will be top headline makers but who knows when or what those will say. Earnings is dominated by Alcoa on Wednesday, followed up by Pricesmart, Walgreens and Pepsico on Thursday. Alcoa might not be that great but as always it will be the forward outlook that is more important. Next week the big banks report, along with quite a few big names in the industrial, consumer, technology and transportation sectors so it is bound to be active.

Until then, remember the trend!

Thomas Hughes