Introduction

A quiet market held steady ahead of earnings season, the season kicks off this Friday with releases from Citigroup, Wells Fargo and JP Morgan. Expectation for the season remains high, based on the first 5% f the S&P 500 to report those expectations will likely be met. Today's action was very light, volume for the SPY was less than half the 30 day average, and may remain so until later in the week when economic and earnings releases hit the market.

Asian indices were mostly higher following the Friday jobs reports. Better than expected jobs and steady wage growth reinforced economic and FOMC expectations bolstering market sentiment. The Shang Hai composite stands out as a lone loser, shedding about -0.20% for the day. European indices also closed largely higher following a choppy session. Indices across the region gained in the range of 0.25% to 0.75% following last week's labor data and G-20 headlines coming out over the weekend. While little of substance was accomplished it seems like tensions between world leaders is easing.

Market Statistics

Futures trading was flat and mixed for most of the morning. The tech sector led with gains while the broad market held steady near break-even and the industrials lagged with small losses. There was no data or earnings to move early trading so these levels held fairly steady all morning. The open was calm and without event, the indices began trading as expected but quickly began to show signs of support. By 10AM it was clear that bias was to the upside however weak the market, intraday bottom was established and the market drifted higher from there. The SPX topped out at 2PM with gains in the range of +6 points and then made a brief retreat to test support. By 3:30 support was established and another run higher was made. New daily highs were made just before the close but they did not hold, selling just before the bell sent most back to break-even before the close.

Economic Calendar

The Economy

No economic data today but there is a bit later this week. Tomorrow is fairly light as well, wholesale inventories and JOLTs, with Wednesday bringing the Fed's Beige Book. Thursday picks up with PPI alongside the weekly jobless claims, Friday wraps the week with 6 major releases including CPI and retail sales.

Moody's Survey of Business Confidence rose 0.4 to hit 33.2%. The index has stabilized after falling from a peak mid-June. Even so confidence remains high relative to historic levels. Mr. Zandi's commentary is a bit less euphoric than it was a few weeks ago but still positive. He says global business sentiment is upbeat led by the US and lagged by South America. Asian sentiment is improving while Europe remains tepid.


Earnings season begins in earnest this Friday with reports from 3 of the worlds largest financial institutions. That being said the season is underway with a little more than 5% of the S&P 500 reporting. Of those 78% have beaten EPS estimates and 87% have beaten revenue estimates, both well above average. The blended rate of earnings growth for the quarter is now 6.5%, down a tenth from the beginning of the month, with a chance of rising 4% or more before the end of the cycle if the 4 year trends hold true.


Looking forward earnings growth expectations have held fairly steady over the past few weeks. Growth is expected to remain in the picture for the next 6 quarters or more with that growth expanding on a quarter to quarter basis. Third quarter growth is estimated at 7.3% and grows to 12.4% in the fourth quarter for a full year 2017 growth rate of 9.8%. Full year 2018 estimate is 11.6%.


The Dollar Index

The Dollar Index held steady in today's session, closing with a gain less than 0.05% and creating a small doji candle. The index is consolidating at a support target, $96, and was able to close above it today. The slide in value driven by diminished FOMC hawkishness and increasing ECB hawkishness has halted in the near term and supported by last week's NFP. The index is set to retrace back to the short term moving average near the $97 level. Data later in the week, particularly the CPI and PPI, could move the index higher provided they support economic outlook. If the index falls through $96 first target for support is $95.50, a bounce higher may find resistance at $97.


The Gold Index

Gold prices held steady today as well, steady near the 4 month low. Prices are sitting just above the $1,200 support level and poised to test that level again as political risk and flight-to-safety traders leave the market. A break below $1,200 would be bearish with downside target near $1,175. A bounce would be bullish in the near term but without a major dollar weakening event likely to be capped by resistance. Targets for resistance are $1,215, $1,235 and $1,250.

The Gold Miners ETF GDX rose from support at the bottom of the short-term trading range but was capped at the $21.75 resistance line. The ETF is trapped in a range with little sign of breaking out although that may change should gold prices continue to fall. The ETF is bouncing from a strong support level with indicators consistent with range bound trading and a move to support. Stochastic is divergent from the near-term low and trending in the middle portion of the range with %K pointing higher. MACD is divergent from the low over the short-term, hovering near the zero-line and rolling over from a bearish peak. A move higher would be bullish but only in the near-term. Resistance is just above today's close at $21.75 and then just above that at the short-term and long-term moving averages and then the top of the down sloping resistance line. Support is $21, a break below that would be bearish with downside target near $20 in the near-term.


The Oil Index

Oil prices firmed today but remain under pressure. Today saw WTI gain a half percent but still trading below $44.50. Today's rise was aided by the possibility OPEC will widen the production cap to include Nigeria and Libya, two countries currently excluded, but supply issues will persist regardless. On the domestic front rig counts rose again, adding supply to what is already robust production and high storage levels. Without a change to fundamentals, a real change, I see no reason for oil to sustain a rise in prices and lots of reason for further decline. Resistance is at $45 for now with a downside target is the recent low near $42.

The Oil Index gained about 0.20% today, moving up from Friday's test of support. Near term support is now just above 1,080 and the next possibility for my long awaited bottom. Price action over the last month is consistent with support, a bottom is not yet indicated or confirmed. The indicators persist in giving mixed signals which suggests the down trend is not as strong as it may look. MACD for one has been weak since February, ever since prices reentered the 2016 trading range between 1,080 and 1,200. In that time stochastic never truly entered bear market territory, trending in the middle portion of the range consistent with a trading range. Forward outlook for earnings growth remains positive for the sector, perhaps the earnings reports will confirm that and spark a rally. Until then the sector is likely to remain under pressure with gains capped at resistance. Upside target is near 1,120 and the short-term moving average.


In The News, Story Stocks and Earnings

Amazon was today's major headline due to the Prime Day crypto-holiday which begins tonight at 9PM. The Internet behemoth is expected to bring in up to a billion, $1,000,000,000, dollars in one day due to expanded and deeper discounts. Shares of the stock soared in today's action gaining nearly 18% on expectations of greatness. I for one am a little scared of Amazon and its penetration into our lives, but that's just my inner conspiracy theorist speaking out.


The banking sector held steady and looks poised to move higher on earnings releases. Today's action saw the XLF Financial SPDR close with a loss of -0.11% after trading sideways for the 7th day. The ETF appears to be waving a bullish flag just below the ten year high with eyes on moving higher. Resistance is just above $25 and based on the indicators will be tested or broken. MACD momentum is bullish but has retreat a bit from the most recent peak, stochastic is pointing higher but also showing signs of resistance. A break of resistance supported by earnings will be very bullish for this ETF with upside targets near $26 and $27.


TheVIX has retreat from last week's peak but has not quite decided it's ready to fall back below the 11 level. The fear index is poised to go either way, depending on earnings results most likely, with little indication of direction from the indicators. Both MACD and stochastic are technically bullish but both are also very weak and inconsistent with strong movement. The index may trend sideways over the course of the week with Friday a target for real movement, direction dependent on the banks and their earnings reports.


The Indices

Today's action was weak to say the least. The good news is that it was above support levels with no signs of deeper correction forming at this time. Tech led again, the NASDAQ Composite posting a gain of 0.37% and creating a small green bodied candle. Price action opened above the short term moving average, tested it and moved higher confirming support at that level. The indicators remain bearish but both are consistent with a test of support within an uptrend and rolling into bullishness. Support is along the long-term up trend line near 6,125. A move higher would be bullish and trend following with target at the all-time high. A move lower would find support along the up trend line, a break below that would be bearish.


The other indices all posted losses although they were minimal. The Dow Jones Industrial Average posted the smallest loss, -0.02%, but still created a green candle. Today's action is above the short-term moving average with little sign of breaking through support. The index is trapped within a near-term trading range a likely to remain so, at least until Friday. The indicators are weakly bearish, consistent with a pull back to support within an up trend, and showing early signs of rolling over. A move higher from this level would be bullish and trend following with upside target at the top of the near-term range and the all-time high. Support is at the bottom of the range near 21,250 and the short-term moving average, a break below that would be bearish.


The S&P 500 posted the 2nd largest decline, -0.09%. The broad market created a small bodied green candle and spinning top just above the short-term moving average. There is a bit of visible upper wick indicative of some resistance but price action as a whole is pretty weak. The indicators are also weak but generally consistent with a move to support within an up trend. Support is near 2,410. A move higher would be bullish and trend following with upside target at the bottom of the up trend line and the current all-time high. A break of support would be bearish and could lead to correction of -2% to -5%.


The Dow Jones Transportation Average brings up the rear with a loss of -0.21%. The transports created a small shooting star doji setting a new all-time intraday high and indicative of resistance to new all-time highs. The indicators are bullish and gaining strength however so I would expect to see resistance tested again and possibly broken. A failure to break resistance would be bearish in the near to short-term with downside target near 9,400.


The indices have retreat to what appears to be strong support levels ahead of earnings season. Price action over the past month or so has been choppy and directionless but did not do damage to long or short-term trends. This action was largely due to sector rotation, aided by politics the FOMC and other news, and has left the market ready and waiting for what comes next. Based on the charts it looks like the expectation is for the market to move higher, based on the VIX it looks like traders are protected in case it doesn't. I remain cautious for the near-term simply because the earnings cycle has yet to begin but I am bullish and ready to trade.

Until then, remember the trend!

Thomas Hughes