Introduction

The market held steady today, trading in a range so tight it barely made a blip on the radar. Earnings season has started and this week begins to heat up. Today's action shows a market in wait-and-see mode, ready to move in either direction depending on how results come in. There are a total of 68 S&P 500 and 9 Dow components reporting so we should get a fairly decent read on which way the wind is blowing. To date, 5 sectors are beating expectations led by the Financials.

Asian markets were mixed despite better than expected GDP from China. China reported 6.9% growth for the 2nd quarter, edging up from the first quarter, but did not calm fears spurred by financial regulators. Headlines from a policy meeting have led investors to believe tighter regulation and a slow down in financial innovation was on the way. Korea led with a gain of 0.43%, the Shang Hai Composite lagged with a loss near -1.40%. Europen indices fared little better as the second round of Brexit negotiation begins. The FTSE led with a gain of 0.35%, the DAX lagged with a loss of -0.35%.

Market Statistics

Futures trading was near perfectly flat this morning. The SPX was indicated to open with gains in the range of -1 to 1 point and that held steady throughout the early morning. The open was calm, the indices opened with small losses and quickly established the day's bottom. By 9:45 the indices were bouncing higher. Volume was low and action was weak, intraday top was hit below Friday's highs and held the remainder of the day. Late afternoon trading saw the indices fall back to the bottom of the daily range where support began to reassert itself. Support held leading the indices to close near the middle of their respective opening levels.

Economic Calendar

The Economy

Only one report today and it was OK. The Empire State Manufacturing Survey shows the manufactuing sector is still growing but that growth has slowed. The headline number came in at 9.8 for July, down from last month's 19.8 and well below the expected 13. Within the report all components remain positive although they are also all showing reduced activity. New Orders came in at 13.3, shipments at 10.5 and employment at 3.9. Hours worked was the weakest coming in at an even 0.0.


Moody's Survey of Business Confidence took a dive this week, shedding 2.7% to hit 30.5. This is the lowest level for more than 6 months. Mr. Zandi points out that while this is a bit surprising one data point does not make a trend and there is some expectation for correction following the many weeks of strong reports we've had. The four week moving average of confidence remains high and consistent with optimistic business conditions. The caveat is that it will only take another week of lower numbers for the average to start making a dip.


Earnings season has begun and will heat up this week. There are 68 S&P and 9 Dow Components reporting which makes it one of the busier weeks. To date 6% of the S&P 500 has reported with 80% beating EPS estimates and 83% beating revenue estimates. The blended rate of earnings growth for the quarter is now 6.8%, up 0.3% from last week, and is expected to continue rising.


Looking forward earnings growth is expected to continue into the next 6 quarters at least with the caveat that those expectations have been in decline. The largest contributor to declining estimates is the energy sector which at one point was expected to post growth in excess of 450% for all of 2017. With oil prices down -15% from their 2017 highs a drop in forward outlook was expected, the sector is now projected to post growth closer to 150% for the year.


The Dollar Index

The Dollar Index fell to new 10 month lows as FOMC rate hike expectations continue to decline. Janet Yellen assured us last week another hike was a definite possibility this year, the problem is that the data and specifically the inflation data does not support it. Meanwhile EU economics continue to improve and support the euro adding downward pressure to the dollar. The index is now sitting on the $95 level with indicators in support of lower prices. This level may become support, it is coincident with support levels set last year, and a break below it will be bearish. There is not much data to move the dollar this week but there is an FOMC policy decision next week, that might do it.


The Gold Index

With political risk largely evaporated from the market the gold/dollar correlation is working a little better now. Spot prices for gold rose another 0.5% on weak dollar today, moving up to begin testing the $1,235 resistance level. This level has been important many times over the past year or so and a likely trigger point for new trades. A break above this level will be bullish with upside target near $1,250.

The Gold Miners continue to wrestle with resistance even while gold prices begin to rise. The Gold Miners ETF GDX closed with a small gain but price action created a small red bodied candle with long upper shadow in confirmation of resistance. Resistance is the short term moving average and the $22 level. The indicators are bullish in the near term, both are pointing higher, but short to long term both remain consistent with range bound trading and are not indicative of strong movement in either direction. The narrowing trading range may persist into the near term with next foreseeable catalyst for break-out the FOMC meeting next week.


The Oil Index

Oil had some support in early trading but profit takers and uncertainty among the bulls left prices in the red at settlement time. There are signs of near term shift in supply/demand balance but the extent is still unclear. Regardless, longer term fundamentals remain skewed to the supply side so any upside we see now will be limited. Now that WTI has confirmed support at/above $45 upside target is near $50. Once prices reach that level expect to see US rig counts and production begin to rise again.

The Oil Index tried to rise today but it too was capped by resistance. The index closed with a loss near -0.20% after rising about that high intraday. Resistance is the 1,120 support/resistance line that has been in play for over a year. The indicators are bullish and pointing higher so I would expect to see prices at least test resistance again, a break above which would indicate further upside.


In The News, Story Stocks and Earnings

Blackrock reported earnings before the bell and delivered a miss on the top and bottom line. Revenue grew year over year by 6.1% and only fell short of estimates by less than 1%, driven by increased traffic in lower cost passively managed funds. EPS grew by 10% but was not enough to satisfy the market. Shares of the stock fell by nearly -14%.


JBHunt also reported a miss. The intermodal trucking company delivered a high single digit increase in revenue for all segments but was not able to meet expectations. The company reports that volume growth and an increase in revenue producing trucks was offset by increases in costs. The news sent shares falling in the premarket session to open with losses near -2% but buyers stepped in to drive prices back up. Today's action created a large green bodied candle rising from the short term moving average and bullish for near term traders..


Netflix reported after the bell and set a high bar for the tech sector. The company reported above expectation increases in subscriber growth, revenue and EPS that more than pleased investors. The company also guided 3Q revenue and earnings above consensus. Shares of the stock rose more than 10% on the news to trade just shy of the all time high.


The Indices

Today's action wasn't bullish and it wasn't bearish, it was about as neutral as a day of trading can be. Aside from the Dow Jones Transportation Average the major indices posted nearly no movement for the day. The transports however fell nearly a half percent shedding -0.45%. The index created a small doji candle indicative of near term support but not a strong one. The indicators are a bit mixed showing bullishness in the longer term but consistent with a peak in the nearer. Support is a bit below today's close along the short term moving average, about 50 points lower, and may be reached if the index does begin to move lower. If not resistance may be found just above today's close at the current all time high.


The S&P 500 closed with no gain and no loss, 0.00%. The broad market created a small doji candle with no visible body and barely visible upper shadow touching resistance at the bottom of my up trend line. Today's action is far from definitive but may indicate a near term peak. The indicators are bullish and pointing higher although there are some red flags, stochastic is showing early signs of resistance and both are divergent from the new high. A fall from this level may find support along the short term moving average, a break above the trend line would be bullish and trend following.


The Dow Jones Industrial Average closed with a loss of -0.03% and also created a small doji like candle. The blue chips are struggling with resistance at my long term up trend line and may not be able to break it. The indicators are bullish and suggest it will be tested but they are still weak and showing divergence so a break to new highs is questionable. Resistance is 21,640, a break above which would be bullish and trend following. Support is near 21,367 and the short term moving average.


The NASDAQ Composite posted a gain of 0.03% and nearly set a new all time high. The tech heavy index toyed with new all time closing high today but just didn't have the wherewithal to do it. Today's candle is a very small doji like spinning top just below the current all time high and may indicate a peak. The indicators are a bit mixed but showing signs of resistance and the possibility of a peak, MACD is bullish and suggests resistance will be tested while stochastic has already begun to roll over. A break to new highs would be bullish and trend following. Failing to break to new highs may result in a pull back to firmer support with target near 6,200 and the short term moving average.


The near, short and long term trends are all bullish, last week's rally a trend following confirmation of the bull market. Today's action was cautious and rightly so, earnings season has just begun and there is still a lot that could go wrong. If the season isn't as good as expected, if forward outlook continue to decline, the chance for correction remains. I am bullish for the near term but still ever so cautious, waiting for the strong signals I know will come when the market is ready.

Until then, remember the trend!

Thomas Hughes