Introduction

The market is waiting on OPEC, the FOMC and 38% of the S&P to report earnings, oh my! The OPEC meeting turned out to be a bit of a dud so far, as for the rest we've to wait a bit to see they all play out. The FOMC meeting begins tomorrow, they aren't expected to raise rates so it will be the statement that drives trading. Earnings reporting is lightest today and heaviest on Friday with some of the biggest names in the market on the list. Today's highlight was Alphabet/Google after the bell.

Asian indices were mixed; China moved higher, Japan lower. The moves were driven by the week's upcoming FOMC meeting, ongoing political scandal in the US and the falling dollar. European indices were mostly lower although there were a few indices to close positive. The FTSE led with a loss near -1.0% followed by the DAX's -0.25%.

Market Statistics

Futures trading indicated a flat to mildly negative open for most of the morning. There was no economic data and little in the way of earnings to disturb trading in the early session. The open was as expected although selling quickly set in, within a few minutes of the open the SPX was down a quarter point. Selling persisted throughout the morning although action turned out to be rather light. Intraday bottom was reached just before 11:30AM, a little more than -0.50% for the broad market, and held the rest of the day. The indices crept higher from there in jerky action until recovering the early high late in the day. A rally in the final minutes of trading sent shares up to set a new intraday high but it did not hold into the close.

Economic Calendar

The Economy

No economic data before the opening bell but there were 2 shortly after it. The first was Markitt's Flash PMI reading for July. The reading for industrials came in at 53.2, up 1.2 points from last month, and is a new 4 month high. This month's advance is driven by new orders, employment and inventory growth. The reading for services sector was unchanged from the previous month at 54.2 and shows continued expansion in the sector.


Existing Home Sales was released at 10AM and came in slightly weaker than expected. The number of existing homes sold fell by -1.8% to 5.52 million on an annualized basis. The reason for the fall is continued lack of inventory. Despite the fall sales remain robust at near record highs and up 0.7% from last year.

Moody's Survey of Business Confidence gained 0.8% this week, rebounding from last week's lows. Despite the rise confidence appears to be in correction after hitting 2 year highs less than 2 months ago. Mr. Zandi says global confidence is still solid and positive but has softened on lower than expected sales and moderated forward outlook.


As of last Friday about 19% of the S&P 500 had reported earnings. Of those 73% have beaten EPS estimates and 77% have beaten revenue estimates, both above average. The blended rate of earnings has crept up in the last week, gaining 0.4% to hit 7.2%, with 9 of 11 sectors beating expectations. Looking to this week there are 191 companies expected to report, about 38% of the entire S&P 500 index, 13 of them are also Dow components.


Looking forward the earnings growth outlook remains positive but continues to dim. Declining oil prices and uncertainty in the oil sector have forward outlook plunging which is the main cause. Even so, outlook remains strong both for the sector and the index. The 3rd quarter estimate fell -0.7% to 6.4%, the 4th quarter estimate fell -0.5% to 11.7% which combined to bring full year blended rate down -0.3% to 9.3%.


The Dollar Index

The Dollar Index opened with a small gain but fell throughout the day. The index is under pressure from a rebalancing of central bank expectations and may move lower. Tomorrow's FOMC meeting and the Wednesday policy announcement is the next potential catalyst. The index is now trading at a slightly greater than 1 year low below $94. If support does not step in at these levels a move to $93 and $92 looks likely.


The Gold Index

Spot prices were up nearly a full percent in early trading but those gains were not held. FOMC expectations have prices inching higher with the possibility of retesting highs near $1300. There is no expectation of a rate hike, CME estimates chances at slightly more than 3%, so the statement will be key for the dollar and gold. If they continue to back off of their outlook for rate hikes, the time line and/or the target rate the dollar could continue its fall and send gold shooting higher.

The Gold Miners ETF GDX fell more than -1.70% in today's session. The Index created a medium size red candle confirming resistance still exists at the top of the ever narrowing trading range. I thought the last FOMC meeting would be the one to move the index out of this range, maybe it will be this one. That being said, there is a little evidence of break out to the upside or at least a continuation of sideways trading. Recent action has broken the down sloping resistance line which could lead to a move higher to next resistance target within the greater 6 month trading range. Support appears to be strong at the bottom of the range along the $21/$22 level, a move higher could go to $24 or $25.


The Oil Index

WTI gained a little more than 1.30% following today's OPEC/non-OPEC meeting in St Petersburg. There was no movement on speculated plans to extend the production cut already in place but comments emerged to the effect that OPEC and its allies in oil were committed to doing so if the need arose. Saudi Arabia pledged to curb exports next month in another attempt to limit supply but that supply remains above ground nonetheless. WTI is now trading near $46.40.

The Oil Index fell -0.6% to trade at the short term moving average. Today's action is the third of three down days since the index surged to a one month high and helps confirm support at this level. The indicators are bullish but consistent with a pullback so there is a chance of them reversing. A break of support would be bearish and could go as low as 1,100. A bounce from this level would be bullish and help confirm short term reversal in the sector. Whichever the case is likely to happen this week as the big oil companies begin to report.


In The News, Story Stocks and Earnings

Shares of Nintendo fell -2.5% in early trading on news of a major failure for Pokemon Go. Nintendo is not responsible for Pokemon Go but is a major shareholder in the company. Regardless, there was a huge Pokemon event where attendance was so great it crashed the servers. Needless to say there was very little game play done that day. The Nintendo charts are choppy due to their primary listing in Japan but they are not so choppy you can't see patterns forming, the one I see forming now is a possible Head and Shoulders.


Arconic, formerly the downstream unit of Alcoa, reported earnings before the bell. The company reported top and bottom line beats that led management to raise forward guidance. Even so the big news commentary about the use of flammable panels in the devastating London fire. Interim CEO (filling in for ousted Klaus Kleinfeld) says the company had no control of the supply chain which resulted in the panels use the building. Shares of the stock popped in early trading only to sell off during the day to close with a small loss. Today's price action closes a gap formed following the Grenfell Tower disaster and may help clear the way for future upside.


Google reported after the bell and delivered strong top and bottom line results. EPS came in 11.35% above estimates driven by cloud revenues. Total revenues grew by 21% over last year. The company reported growth in revenue and earnings for all segments, click growth coming in at +52% over last year at this same time. The news first drove shares higher but the move did not last. After the release was read a little more thoroughly shares fell -2.75%.


The Indices

The NASDAQ Composite was today's leader, driven higher on hopes for tech earnings this week and Google earnings this evening. The tech heavy index gained a little more than 0.35% to set a new all time high. It is creeping higher with strong bullish momentum and rising stochastic which has just crossed the upper signal line. Unless something emerges to reverse the move I would expect to see it continue higher into the near term at least.


The S&P 500 posted the smallest loss, only -0.11%. The broad market tried to set a new all time high but just wasn't able to do it. Today's action created a small spinning top doji just beneath resistance and this action may continue over the next day or so. Resistance is the underside of my up trend line and the current all time high, a break above which would be trend following and bullish. The indicators are both bullish and showing some strength although there is also some sign of resistance at current levels. A move up from here could go as high as 2,530 in the near term, a move lower may find support at the short term moving average.


The Dow Jones Industrial Average posted a loss of -0.31%. The blue chips created a small red bodied candle the 9th candle of near sideways action just above support along the short term moving average. The index appears to be in consolidation within a near term up trend and could be setting up for another push higher. The indicators are a little mixed, stochastic is bullish and pointing higher while momentum has shifted to the downside, so outlook is hazy. A move higher would set new all time highs but also face technical resistance at the underside of the up trend line. A move lower may find support at the short term moving average, a break below that could go as low 21,250 in the near term.


The Dow Jones Transportation Average made the largest decline, -0.45%. The transports have been in near term retreat and today created a small red bodied candle below resistance with bearish indicators. Resistance is the short term moving average, both indicators are pointing lower with targets near 9,325 and 9,155.


Depending on which index you take for your lead the market is heading higher or lower. If the transports lead the market it looks like we're in for near term correction, if you take cues from the NASDAQ it looks like the indices will keep drifting higher. Considering the number of earnings reports coming out this week I'd say there is a good chance we'll know which one is right by the end of the week. I remain cautiously bullish in the near term and firmly bullish for the long, waiting to see what happens with the FOMC, earnings and the GDP release. A triple shot of good news could spark a new round of buying.

Until then, remember the trend!

Thomas Hughes