Introduction

The Great Eclipse of 2017 has come and gone and no market shaking events came with it. While fantastic to imagine what did get reported was a boost to tourist economics in a broad swatch across America, from coast to coast.

Other than that today was relatively event free as is the week; earnings season is all but over and there is very little in the way of economic data. What we do have to look forward to this week is the FOMC, and more specifically Janet Yellen and a speech she is set to give Friday at Jackson Hole.

Asian indices were flat and mixed with one index up a half percent and another down a half percent. Sentiment was downbeat regardless the index as traders wait to see what happens with Trump, the Trump Agenda, Trump's scandal's, fallout from Bannon's banning and the NAFTA negotiations. European indices were mixed as well but most closed with losses.

Market Statistics

Futures were flat and mildly positive for most of the morning. With little economic data and no earnings or fresh political news to speak of trading was tame and held within a tight range. The open was calm and without direction, price action on the indices moved sideways within a fairly narrow range before dipping lower to hit the intraday low just before 10:30AM. The SPX was down as much as -7 points at the low and then bounced back to break even levels and even a little higher before the move sideways resumed. The daily range held from then until the close leaving the indices hovering near the mid-points of their ranges and break even for the day.

Economic Calendar

The Economy

The Chicago Federal Reserve's Activity Index shows stabilization within the economy and activity moving in line with trends. The index is a gauge of 85 market indicators and came in at -0.01% in July after rising to 0.13% in June. The index shows economic conditions moving in line with trend with it hovers near zero. The 85 indicators are broken up into 4 broad categories, 3 of which have been falling over the last 2 months.


Moody's Survey of Business Confidence rose 0.1% to 32.1% and a 6 week high. The index is consistent with broad confidence within the global business economy but still well off the highs set in 2015. Mr. Zandi says the index shows business remains strong and an economy expanding above potential.


With just under 98% of the S&P 2nd quarter earnings reports in the bag the stats remain the same. The blended rate of growth for the 2nd quarter is 10.2%. This is 3.7% above the rate estimated at the start of the reporting season and slightly below the 4% to 5% increase predicted by the averages. Regardless, 10 of the 11 S&P sectors performed better than expected. Full year 2017 outlook remains constant as well, holding steady at 9.4%.


Forward outlook remains positive although greatly diminished from only a month or two ago. The decline in forward outlook is on the one hand concerning but on the other not as it is primarily due to falling oil prices. When oil prices they took a big bite out of forward earnings outlook for the energy sector. The next two quarters should growth dip to 5.2% and then grow to 11.2% with final growth rates in the range of 9%-10% in the 3rd quarter and 15%-16% in the 4th. Beyond that 2018 is expected to come in at 11.5% for the year which means growth expansion may peak but likely to remain strong through the end of the period.


The Dollar Index

The Dollar Index held near perfectly flat for the day posting no gain and no loss. The index is hovering above a long term low and just below resistance while in down trend. Last week's FOMC/ECB minutes did little to alter the balance between the world's most important currencies leaving the index in limbo. A fall from resistance at $94 looks likely and would be trend following with little in the way of news expected to support it. The indicators are bearish and firing a strong sell within the down trend. The risk is Yellen's speech on Friday and to a much lesser extent this week's data, hawkishness will support, and of course political risk.


The Gold Index

Gold prices edged higher on simmering fears. The North Korea situation has been back-burnered but still a hot issue as is the apparent meltdown of Trump's advisory support system. Between them and the downward slope on which the dollar is trading gold is likely to retest the highs set last week, just above $1,300. Again the risk is Janet Yellen and her speech on Friday, if she makes any mention or is leaning toward hawkishness the dollar could jump higher and send gold down in reaction.

The Gold Miners ETF GDX gained 0.35% as it continues to try and break out from the narrowing short term trading range. Today's action fell short of the intraday high set Friday but is a move higher and closes at/above my down sloping resistance line. The indicators are bullish but weak suggesting no more than a rise with a trading range at this time. If the ETF is able to move higher next resistance is near $24. Looking back along the 150 day moving average there is evidence f long term buyers in the market so I would not count on a move lower at this time.


The Oil Index

Oil fell more than -2% as prices move lower with the trading range. Today's action was influenced by signs of high supply and growing US/global production but likely will be supported near $35 if not sooner. Last week's rig count shows the largest drop in US rigs in months and likely to influence prices in the near future. WTI closed the day below $47.50.

The Oil Index fell a half percent today in action that is sideways from Friday's candle. Today's candle is small and red and possibly part of a small bearish flag within a sharp near term down trend. Price action looks to be consolidating at my 1,080 support line with a chance of moving lower. The indicators are bearish if a bit mixed, momentum is bearish and moving lower while stochastic is possibly rolling over while deep in overbought territory. If the index does move lower the next likely target for support is near 1,000. The bottom I have been anticipating may not be coming, not yet anyway. Until then the sector looks set to fall.


In The News, Story Stocks and Earnings

Commodity giant BHP Billiton released earnings before the bell. The company reported that it returned to profit in 2017 reversing losses made a year ago. Revenue is up nearly 20% YOY with EBITDA up nearly 60% in the same time. Results were driven by strong revenues as well as cost savings above company expectations leading to an increase of the dividend. The dividend was hiked more than 300% from $0.16 to $60 leading shares to rise in the premarket session. Shares opened with a small gain and then extended that to 1.25%, moving up from the short term moving average.


The VIX fell -7.50% to trade below 13.00 but is still elevated relative to recent trends. The index is not indicating a major change in reversal but at these levels suggests that there may be correction or at least consolidation within the market. The indicators are mixed but generally consistent with a move lower with a trading range so a drop back to support looks likely. Support is near 12.00 and confirmed by the short and long term moving averages. This level may prove strong support in the near to short term as we make our way through the earnings doldrums and into the fall trading season.


The Indices

The indices held stead in today's action, the eclipse didn't precipitate the end-times or anything like that. Today's action, while tepid, was mostly positive and led by the Dow Jones Transportation Average. The index gained 0.29% and created a small green bodied candle. The candle is sitting on the long term up trend line but beneath the long term moving average so the next few days could be crucial. A break below the trend line would be bearish with downside target near 8,750, a bounce from the trend line would be bullish with upside target near 9,300.


The Dow Jones Industrial Average gained 0.13% and created a small green candle. The candle is beneath resistance at the long term moving average and up trend line, set to make a move lower. The indicators are both bearish and moving lower suggesting the same. A drop from this level could take the index down to just above 21,000. A move to this level would be about -10% from the recent peak and a very healthy move for the long term bull market.


The S&P 500 made the smallest gain, only 0.11%. The broad market created a small green candle sitting on a potential line of support but the indications are not supportive. MACD is making bearish peaks convergent with near term lows suggesting that sellers are gaining strength while stochastic confirms downside with an additional bearish signal. These indications are near term in nature, support targets are close at 2,400. A move below there would be more firmly bearish.


The NASDAQ Composite made the only decline today, -0.05%, and looks set to fall a little further. The index made a new one month low with today's action and the indicators are don't look bullish. MACD for one is gaining strength with successive bearish peaks near term suggesting that selling is not over, stochastic confirms this with a strong bearish crossover. That being said downside potential is limited due to strong support targets between 6,000 and 6,100.


The indices are set up for a fall and chatter makes it sound like the market is expecting it. That being said I don't expect to see the market fall too far, and when it finds support I expect that support to be strong. The long term trends remain up and outlook remains positive this is very likely, if it comes to pass, the lead in to the next great entry for the secular bull market. The indices have already shed -1 to -3%, another few more percentage points will put them all at strong support and levels where the market can begin to ratchet higher. I am bullish for the long term, cautiously bearish for the near.

Until then, remember the trend!

Thomas Hughes