Introduction

The FAANG led sell-off in tech stocks continued today after a downgrade of Apple sent shares of that stock down another 3.5%. Today's index action was a bit lighter than that of Friday and seen as a chance to rotate out of under-performing sectors and into those with better forward outlook. Four S&P sectors closed in the green today; energy, industrials financials and real estate. The FOMC meeting aslo overshadowed trading, adding a cautious tone to today's action.

International markets sold-off in the wake of Friday's action. Asian indices fell in the range of -0.50% with the notable exception of the Hang Send which fell more than -1.10%. Indices in Europe fell a little harder, averaging -1.00%, as political fear continues to worm its way through the market.

Market Statistics

Futures trading was negative all morning. The SPX was indicated to open with a loss near -0.2% for most of the morning and that held steady into the opening bell. The open was smooth a bit choppy, the first few minutes saw the indices move up to test resistance at Friday's close, find it and move lower. Intraday bottom was about 10AM, about -12 points for the SPX, and sideways trading prevailed from there. The index remained within the early range the rest of the day closing closer to the high end than the low.

Economic Calendar

The Economy

No economic data today but there is a bit of important news coming out later this week. Tuesday there is a single release, PPI, and then CPI Wednesday morning either of which could drastically affect FOMC outlook to the end of the year. Wednesday will also bring Retail Sales in the morning and then the FOMC decision later that afternoon. Thursday 2 regional Fed surveys are due, Philly and Empire, along with weekly jobless claims and Industrial Production. Friday wraps the week with Housing Starts, Building Permits and Michigan Sentiment.

Moody's Survey Of Business Confidence continues to rise. The index gained 0.6% in the last week to hit 36.8, the highest level since October, 2015. Mr. Zandi says that global business sentiment is strong and stable with positive forward outlook. The strongest responses are in regards to hiring and the number of responses indicating payroll reduction have hit an all-time low.


We are now officially on Q2 Earnings Watch, it is roughly 1 month until the onset of the next cycle. The estimated rate of earnings growth for the S&P 500 is 6.6% with 9 of 11 sectors expected to show growth. The caveat is that since the beginning of the 2nd quarter 10 of the 11 sectors have had their outlook lowered, led by the energy sector. In terms of company issued guidance this is the best quarter for positive pre-releases since 2012.


Forward outlook has stabilized. Earnings growth rate estimates had been falling but have held steady for nearly a month. Growth is expected to slow to 6.6% in the current quarter and then expand to 7.5% and 12.4% in the 3rd and 4th quarters with full year 2017 growth in the range of 9.9%. Growth is also still expected to expand into next year to a rate near 11.6%.


The Dollar Index

The Dollar Index fell early today but did not fall back below the $97 level. The index lost about -0.25% intraday but closed down only about -0.10% after bouncing back later in the day. Today's action was cautious and hesitant on an absence of news and anticipation of the FOMC announcement. The CME Fed Watch Tool shows a 96% chance they will raise rates at this meeting but it is the 50/50 chance they may do it again later this year traders will be focused on. If the Fed is more hawkish than what the market has priced in the dollar and Dollar Index could easily move higher. Support is at $97 for now, a move below that could find next support as early as $96.50. A move up from support may find resistance at $97.75.


The Gold Index

Gold prices fell today but losses were minimal. Spot gold trade in a narrow range of $6 and closed with a loss of only -0.2% and above support targets in the $1,250 to $1,260 region. The metal has begun to correct on declining political fears and last week's ECB meeting but an extension is not confirmed. Traders are still waiting on important inflation and FOMC data which will likely be the catalyst to send gold moving again. A move lower needs to break $1,250 but then has targets near $1,230. A move higher has targets near $1,280 and $,1300 in the near term.

The Gold Miners ETF GDX continues to hover within the short-term and narrowing trading range. Today the ETF created a very small spinning top candle at the pair of moving averages, within the range and looks like it will remain in the range for now. The catalyst for break-out is of course the FOMC meeting two days away. The indicators are consistent with range bound trading and currently pointing lower suggesting a move down to support within the range. A move down from here would find support at the bottom of the range near $21 or -8.5% from today's close. A break to the upside would of course be bullish with targets at $24 and $25 in the near term.


The Oil Index

Oil prices rose today on a bit of bullish news but the move is likely short lived. The Saudis are reported to be cutting supply to Asia and the US in July in an effort to ease over-supply issues and WTI rises more than a half percent. Adding to bullish sentiment are signs of stockpile decline at the Cushing, OK supply depot. Despite the gains WTI remains near the $46 level and well below the $52 estimated average price of oil this year.

The Oil Index gained a little more than 0.5% in an extension of last Friday's bounce from support. The index made a small gap higher to hit resistance at the short-term moving average and create a small pin-bar doji. The indicators are both confirming the move with bullish crossovers but the signal remains weak at this time. A pull back from today's levels could find support at the 1,120 support line, a break below that would likely retest Friday's low. Friday's candle is a positive sign for those like me waiting for a bottom in the oil sector. It is not a confirmed signal but highly suggestive of market support.


In The News, Story Stocks and Earnings

GE was top in the news today after the company reported Jeff Immelt was on the way out. He is slated to be replaced as CEO August 1st and Chairman of the Board at the end of the year. Incoming CEO John Flannery is a 30 veteran of GE and the current head of GE Healthcare. The news was a bit unexpected but well received by the market. Emmelt has had a hard time delivering shareholder value and long been the target of criticisms. Shares of the stock responded by jumping nearly 5% to trade at a one month high.


Apple was the cause of much of today's decline after receiving a downgrade from Mizuho Securities. The advisory firm says that much of the forward iPhone growth is already priced into the stock, the second firm in a week to say much the same thing. Shares of the stock fell nearly -5%, hit a one month low and look like they could drift lower to $140.


The VIX rose again today, the second of two advances, but does not look like it will go much further. Price action is already showing signs of resistance to higher prices at the $12 level. Today's candle is small bodied with a long upper shadow, reminiscent of a shooting star and indicative of resistance. This new resistance level is coincident with the top of a three month trading range seen earlier this year and could be significantly strong, or at least significant should the index continue to advance. The indicators are bullish and on the rise so there is a good chance resistance will be tested again. This week is OPEX which means there could be options market volatility even without the FOMC.


The Indices

The indices tried once again to move lower and once again were not able to do a convincing job of it. Today's action was light and led by an outflow from the tech sector. The NASDAQ Composite fell more than -1% intraday closing with a loss near -0.50%. The index fell to test support at the short-term moving average. The candle is a small green candle with long lower shadow sitting at support and suggestive of support. The indicators have confirmed a sell signal within an up trend and suggest that support will be tested again and perhaps broken. A move below the moving average would be bearish in the near-term with target near 6,000 at my long-term up trend line. A bounce from the moving average here would be bullish and trend following with target at the recently set all-time high.


The SPX fell -0.09% and created a small spinning top at the long-term up trend line and support. The indicators are consistent with a peak within an uptrend and test of support, suggesting that it may be tested again. A break below the trend line would be bearish in the near-term with target near 2,400. A bounce would be bullish and trend following with upside target near the current all-time high and then 2,480.


The Dow Jones Industrial Average created a small red candle at the resistance of an up trend line. The index has had a hard time regaining the upper side of this trend line as it sets new all-time highs and looks like it may fall from it. The indicators are rolling over and consistent with a peak, suggestive of consolidation or pull-back within an up trend. Support target is the short-term moving average near 21,000, a break below there would be bearish in the near to short-term. A move above the trend line would be bullish and take the index to new all-time highs.


The transports quietly moved higher to set a new 3 month closing high. The Dow Jones Transportation Average climbed a little more than 0.60% to close near the high of the day and above resistance. The index appears to be moving up to test resistance at the current all time high and the indicators support this. MACD momentum is bullish and ticking higher in support of higher prices while stochastic is set up for a bullish crossover high in the upper signal zone.


The signals are mixed but that's not too surprising ahead of the FOMC meeting and without an earnings cycle to support prices. On the one hand it looks like deeper correction could come while on the other support has been reached with trend following bounces a real possibility. The FOMC may be a catalyst for equities but it will be earnings that really moves the market, and the next round of that is still a month off. Between now and then I suspect we may see some market sidewinding and perhaps lower index prices as traders and investors rotate out of the old and into the new in preparation for the second half of the year. I'm neutral for the near-term, waiting on the Fed and the data. Today may be a buying op but I'm not ready to pull trigger on new positions just yet. I'm still firmly bullish for the long and waiting for the next great trend following entry.

Until then, remember the trend!

Thomas Hughes