The bulls were out on good news but it may not mean the rally is back on just yet.

Introduction

A host of good news, or semi-good news, had the bulls gunning for big gains in today's session. US markets jumped at the open and pushed their way throughout the day. The cause? Weaker than expected data in China, hints of a new deal for Greece, better than expected earnings for us and nothing significant in the way of economic data. Despite today's gains the major indices remain within recent ranges and below potential resistances.

Starting in Asia, indices were mixed. The Japanese Nikkei finished up 0.42%, the Chinese Heng Seng lost -0.13%. The mainland Shang Hai index however gained nearly 5%, all because Chinese PMI and Export data declined more than expected. Chinese PPI fell by -5.4% in July while exports made their biggest drop in four months, -8.3%, both adding fuel to additional QE measures from the central bank.

European indices were buoyed by the news as well as reports that Greece was about to reach a new deal with creditors. This deal would add an estimated $94 million to Greek coffers and before the next round of stress tests. At last report the deal is expected to be announced tomorrow.

Market Statistics

Futures trading was positive during the early pre-market session. Aside from China and Greece there was not of lot of real news before the bell. One bit is the announcement that Berkshire Hathaway would be buying Precision CastParts for $32 billion. Futures held steady into the opening bell at which time the market began to gain strength. Once the bell sounded the indices began to move higher, hit the early indications within the first few minutes, with the S&P 500 up by 18 points by 9:35. Bullish sentiment lasted all morning, carrying the indices to a high just before12:00AM. Afternoon trading kept the indices moving higher, setting new highs several times, and left them near the highs of the day at the closing bell.

Economic Calendar

The Economy

No economic data was released today. There are some important announcements later this week including reads on the consumer and inflation. Tomorrow look for Industrial Production, Capacity Utilization, Wholesale Inventory and then the JOLTs report and Wednesday. Thursday is the usual release of jobless claims figures as well as Retail Sales, Import/Export prices and Business Inventories. Friday finishes the week off with PPI, Industrial Production, Capacity Utilization and Michigan Sentiment.

According to Moody's Survey Of Business Confidence business remain upbeat with confidence on the rise. This week's diffusion index reading of 43.2 is a full point higher than last week, the fifth week of gain and the highest level in just over 2 months. Mark Zandi, Moody's economist and creator of the survey, says that businesses are reporting robust sales, sturdy prices and ample credit along with strong investment spending and hiring.


FactSet reports that 436, 81%, of the S&P 500 have reported earnings so far. Of those 73% have beaten estimates for earnings while only 51% have beaten estimates for revenue/sales. The blended rate for earnings growth now stands at -1%, a half percent better than last week and 3.8 % better than at the beginning of the season with. The surprise rate is 4.5% better than expected, slightly below the four year average. So far 56 companies have issued negative guidance and 22 positive guidance. Ex-energy earnings growth jumps more than 6% to +5.5%. 15 S&P 500 companies are reporting this week.

The energy and health care sectors are leaders in this seasons activity. The energy sector is leading in surprise percentage, the health care sector in terms of earnings growth. To date, the health care sector has reported a +15.4% increase in year over year profits, more than double the rate predicted by analysts. Hmmm, I wonder what could be causing that?

The market is still expecting to see an overall earnings decline in the next quarter. Current projections show a -3.2% decline, led again by energy. Based on trends we can expect the final rate to be in the range of 0 to +1% with the ex-energy figure in the range of 3.2% to 7.5%. Earnings growth is expected to return, by the analysts, by the 4th quarter with full year 2015 growth of 1.2% (7.1% ex energy).

The Oil Index

Oil prices snapped back in today's session. WTI gained nearly 2.5% to trade just beneath $45 with Brent moving back above $50. Today's gains may have been in response to the bombings in Turkey, one of which targeted the US embassy. The bombings are reportedly in response to intensified cooperation between us and Turkey in the fight against ISIS. Other news, namely the China data, did nothing to change to supply/demand picture which remains heavily tilted to the supply side.

The Oil Index responded with a 2.5% gain. Today's candle is the fourth in a row to trade at my recently drawn support line at 1175 and is setting a 6 day high. Current action appears to be the second bounce of a possible near/short term double bottom following the recent 3 month down trend. This move would be in line with the long term trend and so far supported by the indicators. Stochastic for one is creating a strong trend following signal with MACD hitting the zero line and on the cusp of confirming with a bullish crossover. Stochastic is already making a bullish crossover, low in the range with the lower signal line as support, with both lines moving higher. First target is about 30 points above today's close near the short term moving average and 50% retracement line, next target is the bottom of the currently broken up trend line near 1,300.


The Gold Index

Gold prices gt a boost today in what looks more like short covering than anything else. Gold prices have been trading in a tight range, at long term lows, over the past few weeks on interest rate/dollar strength outlook but but downside momentum has waned. Today's move barely breaks price out of that range and is helping to alleviate oversold conditions. Both indicators are now confirming a bullish movement but in light of the recently set lows, FOMC rate hike lift off and a lack of inflation it is more likely setting up for bearish entry rather than reversing trend. Support is in the range of $1070-$1180 with potential resistance in the range of $1130-$1150.

The miners moved higher in tandem with the underlying commodity. The miners ETF GDX gaining about 6.5% in today's session. The indicators are confirming a bullish movement with upside targets near the short term moving average at $15 and then the 100% retracement level that was broken mid July. This move would close the window that opened with the drop below the retracement level but not necessarily reverse the down trend in gold to an uptrend. At best I think we can expect more sideways trading and consolidation. Longer term direction will depend on gold prices, as always. The miners reported slightly better than expected on improving production leaving them ripe for advance should gold prices recover. However, until inflation rears it ugly head strengthening dollar and FOMC rate hikes will keep the pressure on the miners.


In The News, Story Stocks and Earnings

Warren Buffet made the news this morning with the Berkshire Hathaway acquisition of Precision CastParts. The deal is worth $37.2 billion in cash and gives Berkshire exposure to the booming aircraft building business. Mr. Buffet said this in a his statement "I've admired PCC's operation for a long time. For good reasons, it is the supplier of choice for the world's aerospace industry, one of the largest sources of American exports,". The news took shares of Precision CastParts up nearly 20%. Shares of BRK/B traded up after a lower opening but failed to recover all the loss. They closed -0.35%.


Dean Foods reported before the bell. The dairy and specialty foods maker beat earnings and revenue but sent shares tanking on guidance. Despite beating the projections Dean set guidance in line with expectations. The company is expecting earnings in the range of $0.17 to $0.27, consensus is $0.21. This was a surprise given strength of pricing and cash flow. Shares of the stock lost more than -10% on an intraday basis but closed with a loss near -3.0%.


Shake Shack reported after the bell and blew away consensus estimates. Adjusted earnings of $0.09 per share beat estimates by at least $0.06 and comes on a 75% increase in revenue and a 78% increase in sales. The company went on to raise full year guidance and announce the addition of 5 new stores. Shares of the stock jumped more than 4% after the news, support along the 30 day moving average had been tested during the day.


Retail was in focus after the bell as well with earnings guidance from Gap Stores. The jeans company released information on July and 2nd quarter sales, both down, and provided guidance for its upcoming earnings announcement due out August 20th. The company now expects to earn in the range of $0.60 to $0.63 per share, below current guidance and consensus estimates. Shares of the stock fell over -1.5% just after the announcement but recovered the loss just as quickly.


Google made a rather unusual announcement, after the bell. The company is becoming another company, Google will still exist but it is now going to be a wholly owned subsidiary of Alphabet, a new company which will be the umbrella/parent company of Google itself as well as the many side businesses that are now part of Google. Shares of Google will convert to shares of Alphabet and rallied by 6% in after hours trading.


The Indices

The market opened positive and moved higher all day, closing at or near the high for each of the major indices. Today's move was a good sign for bulls but still light on volume. Action was led by the Dow Jones Transportation Index which gained 1.47%. The transports created a long whit candle moving up from support and the short term moving average. The indicators are mixed but it looks like the index is confirming support and the recent bounce from long term lows. MACD is showing bullish momentum, although it is currently in decline, and stochastic is moving higher in the longer term while lower in the shorter term. The index could move higher in the next day or two with upside target near 8,500. This level provided resistance last week and may do so again, a move above this level could take the index up to 8,750 or 9,000.


The Dow Jones Industrial Average made the next biggest gains in today's session. The blue chips gained 1.39% and also created a long white candle. Today's action extended the Friday support bounce and moved the index back above the long term trend line. The index is still below potential resistance levels such as the short term moving average but the indicators are in support of a trend following bounce, if a little mixed. Stochastic is making a strong bullish crossover and MACD is approaching the zero line with 17,750 looking like a good target for resistance over the next few days. Support is currently near 17,300.


The NASDAQ Composite made the third biggest gain in today's session, 1.28%. The tech heavy index created the smallest candle though, what looks like a spinning top compared to the blue chips and the transports. The indicators on this one are still more bearish than not but price action has so far confirmed the long term trend line. Stochastic is pointing lower in both the near and the short term, MACD momentum is still bearish. Today's price action was centered on the short term moving average and appears to be heading up to test resistance at the all time high.


The S&P 500 made the smallest gain today, only 1.16%, but is making one of the stronger signals relative to the other indices. Today's candle is long and white, moves up from support, breaks resistance and the short term moving average and is supported by the indicators. MACD has reached the zero line and is about to form a bullish crossover while stochastic is forming a strong bullish crossover, both in line with the underlying trend. The index appears to be moving up with only the all time high as potential resistance at this time. Support may be found along the short term moving average or just below that near 2,075.


The indices look, once again, like they want to move higher. They are supported by trend, economic data, earnings and outlook. The only problem is that they are still within their respective ranges without a truly clear signal so are just as likely to remain range bound as to break out.

A few things may be keeping them in check including options expiration (next Friday), summer market volume (still low), fear of China (will probably not go away anytime soon), FOMC outlook (September lift-off looking likely), news from Greece and of course the uncertainty of the presidential race.

While trends in earnings (ex energy) and economics are leading the market higher low volume, news and speculation could easily keep the market range bound. It'll be at least at least 3 weeks until more "normal" trading volumes return, and another 2 weeks until the FOMC meeting which I think may be the biggest limiters for any upside movement. In between then and now there will be lots of data as well as plenty of news from Europe and China to move our manic market. I remain bullish, buying on the dips, but as cautious as ever.

Until then, remember the trend!

Thomas Hughes