Global markets are under pressure as China, Greece and FOMC outlook dominate headlines.

Introduction

Global markets were under pressure this morning as Greece negotiations wear on and the Chinese sell-off extends itself. Starting in Asia, markets closed with a loss near -6%. The sell-off was not restricted to China, the Japanese Nikkei fell a little more than -3% in response to growing fears and a warning from China's regulator that "panic sentiment" was entering the market. A move by many Chinese companies to have their shares halted has only added to downside momentum as investors seek to sell whatever they can.

European markets were down in early trading, following Asia's lead, but were able to rebound by mid-day. A new proposal from Greek PM Tsipras renewed hopes a deal would be made and lifted indices around the region by nearly a full percent. Tsipras has delivered a set of proposals, with concrete plans expected to be unveiled as early as Friday with a Sunday meeting of creditors scheduled for Sunday. Today's meeting was canceled in response to the latest developments. Until then the ECB has pledged to keep emergency liquidity for Greek banks flowing.

The feeling was not matched here at home, futures were indicating a lower open right from the start and only moved lower throughout the morning. Other news included a ground-halt of United Airlines flights due to computer glitches, a couple of high-profile downgrades, a new round of lay-offs announced by Microsoft and a halt to trading on th NYSE . . . and all before the 2PM release of FOMC minutes.

Market Statistics

The minutes were not too revealing. One member was in favor of hiking rates last month, the rest of the panel is in agreement that the time is close but not quite yet. More data is needed, specifically sign of inflation reaching target levels. Looking back at the first quarter they say seasonal factors were involved that are likely not to carry over into the spring and summer. Global concerns were mentioned, including Greece and China. At the time of the meeting there was little expectation a deal for Greece would materialize.

A mid-day computer glitch had quotations on the NYSE reading zero. Trading on NYSE stocks were halted to address the issue which only affected that exchange and orders directed to it. NYSE stocks were still being traded through NASDAQ, ARCA and other routes. The problem was linked to a coding issue that was fixed in late afternoon. All orders routed directly to the NYSE prior to the halt were canceled.

Stocks fell as soon as the opening bell sounded. The indices hit lows over -1% by late morning. These losses were amplified following the NYSE foul-up, the low was hit just before noon. A small bounce shaved a half percent off of today's loss but once the FOMC minutes were released indices retreated back to their lows. By 2:45 the indices had hit the low of the day and trying to bounce. The NYSE glitch was resolved at 3:10, hours after it began, and drove the market back down to the lows of the day where it remained into the close of trading.

Economic Calendar

The Economy

The economic calendar was light on releases today, but heavy on impact. Only 2 releases today but one was minutes from the June FOMC meeting. The Mortgage Index, released at 7AM, shows a +4.6% jump in mortgage applications last week, this is up from a -4.7% drop the previous week. The data was adjusted for the shortened holiday week. On a not-adjusted basis applications fell -6%.

The rest of the week is pretty light on data as well. Tomorrow we'll get jobless claims, Friday we'll get Wholesale Inventories. Next week gets active again with a number of important releases including the Fed's Beige Book, Building Permits/Housing Starts, PPI/CPI, Philly Fed and Michigan Sentiment.

The Oil Index

Oil prices continue to fall as global concerns and rising supply weigh on outlook. The EIA announced a surprise build in WTI inventory that sent prices down by more than -1.75% on an intraday basis. WTI is now trading below $52 and at a three month low. Two other developments, one being an apparent impasse in the Iran nuclear talks and the other being an upgrade of 2015/2016 production levels, added to today's volatility and supply/demand expectations. It looks like supply is overcoming demand and could push WTI to the long term low just below $50.

The Oil Index fell more than -2.5% on the fall in oil prices. The index is still trading below the long term trend line and is testing 6 month lows set yesterday. The indicators continue to point lower in the near term but remain consistent with support over the short to long term. The 1,250 level could prove to be support but it looks like it will be tested in the coming days. 2nd quarter earnings could help push the index lower but so long as forward outlook remains positive it will most likely be an entry for long term bulls.


The Gold Index

Gold prices bounced from the $1150 level in today's session. This is long term support and just above the 12 month low. Prices have been pushed lower by strengthening dollar, driven by the Greek issue more than anything else, and are now at the bottom of the 5 month trading range. The indicators show gold is extremely oversold but could continue lower if support levels are broken. The FOMC minutes did little to strengthen to dollar and with the FOMC on inflation watch I remain bullish on gold. News could move gold over the next few day, I think the CPI/PPI data next week could give better clues to long term direction.

The gold miners traded flat most of today but succumbed to selling pressure before the close of trading. The gold miners ETF GDX is now trading just above long term support set over the past year. The indicators are bearish but very weak and consistent with support, MACD is divergent from prices and stochastic is deep in oversold territory while the index is trading within a range. This could lead to further downside but I think it would take another drop in gold prices to do so. The charts still look like a bottom is forming but caution is due given current market conditions. Inflation data could be the deciding factor and could result in a gold rally on low inflation/weakening dollar/no rate hike or rising inflation/rate hike.


In The News, Story Stocks and Earnings

Tesla got another major downgrade this morning. Pacific Crest moved the car maker to sector weight from over weight on valuation concerns. This makes the 2nd downgrade in 2 days, including a similar from Deutsch Bank yesterday. Pacific Crest puts price target at $293, a near 10% discount from Tuesday's closing price. The stock responded by slumping more than -4.6%. Earnings are scheduled for the end of the month, 7/30.


Harley Davidson also received a downgrade today. The company was downgraded from Outperform to sector perform by RBC Capital Markets based on flat demand. Price target was lowered to $59 from $65 with consensus in the range of $65. The stock fell a little more than -2.5% to break potential support near $55. Earnings are scheduled for 7/21, about two weeks from today.


Microsoft announced another round of lay-off's in its efforts to restructure the Nokia portion of the business. The tech giant is planning on cutting 7,800 jobs and will incur a $7.6 billion impairment charge. The cuts will come mostly from the hardware/smartphone segment and are in addition to the 18,000 cuts announced last year. Shares of the stock moved higheri nitially on the news and were the only Dow Component to do so but were not able to hold the gains into the close. Microsoft is scheduled to report earnings in two week, 7/21.


Alcoa reported earnings after the bell. The aluminum producer was expected to report a 18% decline in quarterly earnings from the previous quarter, the actual was much worse. EPS of $0.19 is $0.03 below consensus estimates but come on a small beat in revenues. The company is projecting steady growth for the rest of the year but cited weakness in South American and China. Company CEO was very positive on the results and forward outlook for the companies turnaround. Shares of the stock had been trading lower throughout the day, shedding more than -5%, and did not recover the loss after the report.


The Indices

The market fell today. Greece again was the excuse but other factors are at play. The move was led by the Dow Jones Transportation Index which a set new low. The transports fell over -2% to set a new near-9 month low in a move that looks more and more like it will go even lower. The index is now extending the fall below support that began two weeks ago and could go another 250 points lower. The indicators are bearish, pointing lower and indicating weakness. Stochastic confirms this today with a a bearish crossover of the lower signal line.


The NASDAQ Composite made the second largest decline today, falling more than -1.65%. The tech heavy index closed at the long term trend line and is setting up for a possible break of trend. The indicators are pointing lower in confirmation of a test of support along the trend line at least with a target near 4,750 should it break. The indicators remain consistent with an up-trend in the longer term so until further developments this appears to be a pull-back to trend.


The S&P 500 made the third largest decline, a little over -1.5%. The broad market is testing support levels near 2,050 and is indicated lower in the near term. The indicators are both bearish and moving lower with a break of support very possible. Next target for support is the long term trend line near the 2,000 level, about -2.5% below today's closing price. A retreat to the trend line would constitute a correction greater than -5%. Long term charts are still indicative of up trend so this dip still looks like a normal market correction and not a reversal.


The Dow Jones Industrial Average made the smallest decline today, only -1.47%. The blue chips set a new low in a move down from previously broken support and are heading for the long term trend line near 17,250. The indicators are pointing lower, as with the rest of the major indices, and suggest that this could happen in the next few days. If the trend line is broken next target is just below near 17,000.


The correction continues as we enter earnings season, as of now there is a dark cloud hanging over us in the form of negative earnings growth and global woe. Greece, China and Iran are all problems and need to be watched but even counting FOMC concern are not affecting our economy other than in the form of strengthening dollar. They will impact trading on a day to day basis but the long term trends remain up, except for the transports.

Some businesses are going to be hurt by forex but not all of them. Some other companies are going to post poor earnings, ie the energy sector. However, based on earnings trends, I expect this season is likely to be much better than expected and lead to higher market prices later this year. The correction may continue but the economy also continues to improve so until that changes I'll be looking to buy on the dip.

Until then, remember the trend!

Thomas Hughes