Greece got a deal and the market rallied.... now it's time to focus on earnings and data.

Introduction

They announced a Greek deal, an Agreekment as one official put it, and global markets rallied. The really amazing thing is the deal is worse, not better, than the deal offered two weeks ago and refused through referendum. The news was well received by global markets and somehow made PM Tsipras even more popular with the Greek people. Of course, the deal still has to pass parliamentary approval, there are at least 6 major reforms that must be passed this week with more on the way, so it is possible it could still fall apart. As of now the Greek banks are still closed with Thursday the earliest day mentioned to expect an opening.

In any event global markets rallied on the news and are already refocusing attention their attention. China remains a concern but their market seems to be bouncing back on the combination of moves over the past week that have so far supported the market. The mainland Shang Hai index led with gains near 2.5% followed by the Nikkei and Hang Seng. European markets also rallied, primarily on relief for the Greek deal, with gains in the range of 1-1.8%.

Market Statistics

Index futures for US markets were positive all morning. The S&P was indicated higher by 15 points or more for most of the morning and that held into the opening bell. No data was released today and earnings were light although the calendar is full of both later in the week.

The market opened strong on today's news and kept on climbing. The broad market gained about 0.85% within the first half hour trading and hit the morning high around 10:15AM. Once the high was hit trading consolidated just below those levels. The indices tread water throughout the afternon but held near their early highs. Just before 3PM the bulls got their wind back and were able to push to another new high, extending today's gains. The pop lasted the entire final hour of trading leaving the indices at their highs for the day when the closing bell sounded.

Several headlines about the Iran deal crossed the wires throughout the day as well. None seemed to impact the broad market but oil prices were volatile. The pendulum swung both ways, at one point no deal was expected today, at another a deal was seen to come soon but sticking points remained. The last I heard was that a deal would likely be announced by morning.

Economic Calendar

The Economy

No data today but it is a big week for releases. We're mid month which means that housing data starts coming out, as well as CPI/PPI and the Beige Book with this go round. Tomorrow is Retail Sales, Import/Export Prices and Business Inventories. Wednesday PPI, Empire Manufacturing and Industrial Production/Capacity Utilization come out in the morning with the Fed's Beige Book scheduled for the afternoon. Thursday the weekly jobless claims are rounded out by the Philly Fed survey and the Home Builders index. Friday caps the week with CPI, Housing Starts, Building Permits and Michigan Sentiment. No one data point really stands out as most important but the Beige Book and CPI/PPI could have the most impact on FOMC rate hike outlook.

Moody's Survey Of Business Confidence continues to decline from its all time high but remains strong and above the 40 level. This week the diffusion index fell by -0.6% to 40.2, the lowest level since March. Despite the decline Moody's economist Mark Zandi says the survey shows strength in the global economy. Strength is led by the US where business spending and hiring are notably strong.


According to FactSet the expected blended rate for S&P 500 Q2 earnings growth is now -4.4%. This is up slightly from last week when it was -4.5%. Based on the four year averages this could rise to as high as -1.1% with a chance of turning positive by seasons end. Ex-energy the blended growth rate rises to +1.75%. So far 24 S&P 500 companies have reported with 16 beating estimates for EPS and 12 beating estimates for sales. Another 42 are scheduled to report this week. Healthcare, Financials and Consumer Discretionary are expected to lead with earnings growth of 8.2%, 4.5% and 4.5% this quarter.

It is time to start looking toward third quarter earnings in earnest. The blended rate for the quarter is projected at -1% with that rising to +4.8% ex-energy. Based on the four year average for earnings growth we can expect the blended rate to rise into the range of +3%-+8% by the end of the 3rd quarter reporting season. The Consumer Discretionary sector is expected to lead with earnings growth of +12.6%, followed by the Financials and Healthcare with growth of +10.5% and 9.3% respectively.

The Oil Index

Oil prices fell in early trading as supply outweighs demand and the Iran nuke deal looms closer. Late day prices rebound to post a small gain only to retreat back to early lows by days end. The Iran deal still has significant sticking points, according to reports, but is closer than ever to becoming reality. At last report it could be announced as early as tomorrow morning. Once signed Iranian supply could add as much as 200,000 barrels a day to an already oversupplied market, with that rising to an additional 1 million per day in as little as a year. Meanwhile, fighting in Yemen rages on between Saudi and Iranian backed forces and could escalate if the deal goes through. WTI closed the day just above $52.

The Oil Index was able to squeak out a gain just over 0.5% in today's action. The index created a small doji candle just beneath my rising trend line with indicators consistent with an upward swing in momentum. The bottom of the trend line is potential resistance, near 1290, and needs to be watched as it could keep prices in check. The long term trend is up but a failure to break back above this line could indicate another move to test long term support near 1250 or lower, to the long term low near 1200. Earnings are going to be bad for this sector and could lead to further downside pressure in the near term but long term outlook remains positive. Reports from the major names in this sector are due out the last week of this month and first week of August. I'll be looking for indications of next year's expectations.


The Gold Index

Gold traded down today on rising dollar value but lost only -0.20%. Prices bounced off the long term low, near $1150, for the third time five days and so far appear to be supported. Janet Yellen's comments from Friday, indicating a rate hike was needed this year, has helped to strengthen the dollar while at the same time raising the specter of inflation which is pressuring and supporting gold at the same time. This week's Beige Book as well as the CPI and PPI data are potential movers of gold. The $1150 level could prove to be very important in the short to long term. A break below this level would be bearish and take the metal to new 5 year lows.

The miners remain under pressure as gold trades near its long term low. The miners ETF GDX gained a little over 0.30% after an early loss greater than -1% in a move confirming long term support. This support is coincident with two previous bottoms and the base line of a possible market reversal I have been tracking since last year. Support is near $16.50 and also coincident with the possible bottom gold has been building along the $1150 level.

This third pullback to support by the miners is much deeper than I first anticipated and could move lower if gold prices do not hold their support levels. The indicators are bearish but consistent with a retreat to support within a trading range. If support is broken next target is near $15.75 and the 100% retracement of the previous bull market.


In The News, Story Stocks and Earnings

Earnings this week will be dominated by the financials although there are some other important names and sectors on the list as well. The financials are expected to produce earnings growth near 4.5% this quarter and could easily beat this as expectations are low. Tomorrow JP Morgan and Wells Fargo lead off, both expected to produce earnings in-line with the past quarter but showing gains in the range of 5% over last year at this time. The XLF Financial Spyder gained 1.22% in today's session and looks like it will move higher. The ETF has moved above the short term 30 day moving average and looks like it will retest resistance at the top of the 7 month trading range. The indicators are mixed but rolling into a bullish signal, consistent with a move to the upper end of a trading range. Earnings will play a big part in this move, better than expect and/or positive forward outlook could help break it to new highs.


The Consumer Discretionary sector was a top performer today. The XLY Consumer Discretionary Spyder gained over 1.4%, closed at today's high and set a new all time high. Today's move was led by moves in Amazon and Priceline which both jumped by more than 2%. Amazon is getting a lift from its upcoming Amazon Day sales event and set a new high in today's session. Priceline got an upgrade from Cantor Fitzgerald giving a target 18% above last week's closing price. Priceline is also expected to see a near 50% jump in earnings from last quarter to this. Significant moves in Starbucks, Walt Disney and Nike also contributed to today's move. The ETF is now trading at all time highs confirmed by bullish indicators and positive outlook. The indicators are signaling a bullish trend following entry, MACD has just confirmed a stochastic bullish crossover which triggered at the end of last week. Upside target is now near $80.


Johnson&Johnson reports tomorrow as well. The healthcare conglomerate is expected to report earnings that are 2.4% above last year at this time and 9% higher than the first quarter. Today the stock traded up, gaining a little over 0.70%. It is now trading above the short term moving average with bullish indicators. The indicators are pointing to higher prices with $102.50 as an upside target, dependent on earnings results. A fall from this level could take it down to $97.50 in the near to short term.


Rail carrier CSX is expected to report tomorrow as well. The carrier is unique in its global reach, acquired through use of intermodal shipping container technology, is expected to net $0.53/share for investors. This is up $0.08 from last quarter, in-line with earnings last year at this time and the highest quarterly earnings for at least the last two years. The results are expected despite the drop in oil prices. In a recent report the company financial officer reaffirmed full year guidance and said that based on current traffic volumes 2nd quarter earnings could be flat to slightly up, putting CSX in position to possibly beat expectations. Today the stock lost close to -0.75% and is trading at a long term support level. The indicators are mixed but consistent with support, bearish MACD is receding while stochastic is forming a bullish crossover low in the oversold range. Positive earnings could produce a bounce from this level, negative could help prices fall through.


The Indices

The market rallied throughout the day. While the Greece news appears to be the catalyst I think today's move was more than just Greece. The move started early, hit a high, consolidated for several hours and then broke out to new highs and all led by the tech heavy NASDAQ Composite. The index gained 1.48% in today's session, extending its bounce from the long term trend line and breaking above resistance. Resistance was the previous all-time high, near 5050, and the short term moving average, with next resistance at the current all time high. The indicators are mixed but rolling into what could be a trend following signal. MACD remains bearish but is fast approaching the zero line while stochastic has made a weak bullish crossover. The move is to the upside, in line with underlying trends, with the current all time as target.


The Dow Jones Industrial Average made the next largest gain, 1.22%. The blue chips created a long white candle, extending Friday's bounce, and broke above the short term moving average. The indicators are confirming the move with a weak bullish trend following signal that points to a test of resistance at least. Resistance is just above the current level, near 18,000, with next resistance above that near 18,350.


The broad market S&P 500 made the third largest move in today's session, 1.22%. The index created a long white candle and broke above the short term moving average. The move is in line with the underlying trend and appears to be strong but still has resistance above it. One resistance was broken today with next target about 20 points above today's close. The indicators are rolling over into a trend following signal and will likely confirm with a MACD crossover in tomorrow's action.


The Dow Jones Transportation Average made the smallest gain today, only 1.11%. The transports were however able to close above resistance near 8280 and the short term moving average. The indicators are confirming this break with bullish crossovers on MACD and stochastic with a target near 8500. This signal is in line with the underlying long term uptrend and could result in significant upside, if the nearer term down trend is reversed. At this time the upside move is still in its early phases so caution remains a must.


Now that we are able to see past Greece economic and earnings trends are going to become the focus again. So long as they remain positive the long term trends in the market should remain positive as well. Today's action is an early indication that the bull market is still intact, but it is only an early indication, there are still risks that could wreck the market including earnings, data and global news. Earnings begin to roll out in force with reports from several important sectors, I don't expect much from reports this quarter but I would like to see positive outlook. We will also get a lot of important macro data, some of which having a direct impact on GDP estimates, so it will be nice to see improvement here as well. As for global news, such as Greece or Iran deals, headlines could flash at an time so be wary.

Until then, remember the trend!

Thomas Hughes