Greece sent the market shooting higher but I wouldn't count on a deal just yet.
Yet another attempt by Greek negotiators to get a deal for aid money has sent the market shooting higher. The latest word is that the new proposal is a basis from which a deal could be made, possibly later this week, but no deal is on the table yet.
Traders around the world took the news as a sign a deal would be reached and rallied with varying degrees of commitment. In Asia indices gained a little more than 1.25%, led by the Nikkei and lagged by the mainland China Shang Hai index. The Shang Hai lost over -6% on continued to fear of margin controls putting an end to their liquidity driven rally. In Europe the news was taken very well and sent equity markets up by more than 3.5%, led by the DAX.
Futures trading indicated a similar day for US equity markets and since there was no other significant news before the opening bell that sentiment held. When the opening bell sounded the indices made a strong move higher, the early high was reached within the first 10 minutes of trading and saw gains greater than 0.5% for most indices. The market cooled down a little after that and retreated to test support levels that held for the rest of the day. The indices closed with gains greater than 0.60% but off of their daily highs.
Moody's Survey Of Business Confidence retreated to a 3 month low but remains near long term highs. This week's reading of 42.5 is a decline of 0.5 from last week and a third week of decline in the index. According to Mark Zandi, Moody's economist, the reading shows US and global business expanding at a rate above expectations with hiring and business investment helping to support sentiment.
Existing Home Sales data was released at 10AM. The rate of sales jumped by 5.1%, ahead of expectations, to an annualized rate of 5.35 million. Analysts had been expecting an annualized rate of 5.25 million. This month's reading was impacted positively by an increase in first time home buyers and set a 5.5 year high. The median home price also rose, by a whopping 7.9% on a year-over-year basis, and could continue to rise according to NRO economist Lawrence Yun. Inventory was also shown to have risen moderately but not enough to offset demand pressures. Prices are expected to remain elevated as more buyers come into the market driven by the steady increase in labor market conditions.
According to FactSet year-over-year earnings growth for the S&P 500 was 0.8% in the first quarter. This is 5.6% better than the -4.8% predicted at the low point of the cycle and ahead of the four year average. The four year average shows nearly 4% better performance by the end of the reporting season compared to estimates at the start of the season.
Expectations for the 2nd have declined by a tenth to -4.7% , led of course by energy. So far 7 S&P 500 companies have reported, 5 beating estimates for earnings and 2 beating estimates for revenues. Third quarter expectations are not stellar but reflect slowing momentum in earnings growth declines. The third quarter is projected to have -0.9% earnings growth, 6.4% ex-energy, followed by a 4.7% increase in the fourth quarter. Full year growth is expected to come in around 1.6%.
Taking into account the long running averages and ongoing economic improvements 2nd quarter earnings growth could run near 0% with the 3rd quarter near 3%, the fourth near 8% and full year 2015 in the range of 3-5%.
This week is relatively light on economic data but the calendar is not completely void. Tomorrow we'll get a read on Durable Goods and New Home Sales. Wednesday is the third estimate for 1st quarter GDP. Predictions are rising from the last estimate but remain negative with consensus near -0.3%. Thursday is the weekly jobless claims along with Personal Income and Spending. Friday rounds out the week with Michigan Sentiment.
The Oil Index
Oil prices hung around the $59 level for WTI in day of relatively quiet trading. Prices are being pressured by high supply and high production with still no real sign of demand picking up. Alternately, prices are also being supported by fear factors; Fighting is still ongoing in Yemen where peace talks are stalled, ISIS is rampaging throughout the middle east and the Iranian nuclear deadline is less than 10 days away. Prices for both WTI and Brent may continue to wind up within the near term ranges until one or more of these factors changes.
The Oil Index gained 0.69% in a move counter to today's decline in the underlying commodity. The index created a small bodied candle just above support and continues to show signs of a potential trend following movement. The indicators are both bullish and consistent with a trend following entry and forward outlook for the sector is positive so I am bullish here. Caveats are potential for a decline in oil prices and technical resistance just above current index levels but a break above the moving average would be bullish confirmation and could lead to a move up to 1400 or 1450 in the near term.
The Gold Index
Gold prices fell in today's action as the Greek deal sparked a bit of risk-on sentiment. Today's action carried gold $18 lower to trade just above $1180, near the bottom of the recent range. This move was aided by mild strengthening in the dollar which could cause gold to continue testing support. However, gold remains inside its FOMC/dollar induced range contained by long term outlook and driven by near term news. It could remain so until the first actual rate hike or a firm indication of when one would come. This week's news is Greece and will likely cause more movement within the range as the story unfolds. Support is in a range between $1170 and $1180 with resistance just above $1200.
The gold miners fell as would be expected with a drop in gold prices. The miners ETF GDX lost a little more than -1.25% in a move that created a small bodied candle just above support. Today's action is the second time prices have approached potential support at this level and could be leading to a test of the $18.25 or lower. The indicators are consistent with support at this level and a possible bounce but gold prices will be the determining factor, if they find support so will the gold miners. Support is near $18.25 with resistance at the short term moving average. A break above the average could result in a move up to $20-$21.
In The News, Story Stocks and Earnings
Activity continues to heat up in the health care space. The weekend offer for Cigna from Anthem, for $184 per share, was rejected and came with a letter of disapproval. The deal has been in the works for a little while and recently stalled over issues such as who would be CEO of the new company and when roles would change. Anthem's move is seen as adding pressure to the boards decision making process, and evidence of ongoing consolidation within the sector. This latest offer has added an additional +5% to Cigna share prices, this is on top of the +10% gain we saw last week. Whether or not a deal will be reached is not clear, what is clear is growing momentum as prices get jacked up on all the back-and-forth between the two management teams. Today's action left Cigna trading near $164.
Shares of Anthem gained more than 4% on the news and broke out to a new all time high. This move comes with bullish indicators in confirmation of a trend following signal. The health care sector has been riding high on earnings growth that, along with merger activity, is expected to grow into the future. The healthcare sector saw a near 23% increase in earnings for the 1st quarter of 2015, double first expectations, and is likely to produce similar results for the 2nd quarter. Current outlook is for growth in the range of 7-8% with the chance of this going as high as 15-16% if 1st quarter momentum carries through. One thing driving momentum that is not going to end soon is Obamacare so I see a good chance for positive earnings surprise from Anthem and the rest of the sector. Anthem is scheduled to report earnings July 29th.
The entire healthcare sector got a boost today. The XLV Healthcare Spyder gained 0.87% and set a new all time high. The ETF has been trending up for the last year at least and appears to be heading higher in the near to short term. Today's move is an extension of a bounce from the short term moving average and is accompanied by bullish indicators. Both MACD and stochastic are rising, in line with the underlying trend, and pointing to potentially higher prices. Current support levels are near $75 and the moving average and then below near $72.50.
Ambarella, chip maker for the video/imaging sector, fell further after receiving a nasty downgrade last Friday. The analyst says share prices are "ridiculous" and gave a price target more than 50% lower than last week's closing price. Today's action left share prices nearly -20% lower and helped to sink its biggest partner, GoPro, by more than -5%.
Today's move was bullish and carried all the major indices higher. While there were clear winners and losers in terms of degree, the amount of movement was fairly consistent in the range of 0.60%-0.80%. The Dow Jones Transportation Average led in today's action although it is still lagging in terms of its relation to current all-time highs. The transports gained 0.82% and closed above the short term moving average but is still below the long term trend line and resistance at the 18,600 level. The index appears to be making a move up from a 10% correction but still needs to make a decisive move up off the bottom to be fully convincing. This could be forthcoming as Barons thinks the airline sector could rise as much as 50% in the next year. A move above resistance, at 18,600, could take the index up to the top of the range near 9,250.
The NASDAQ Composite made the next largest gain, 0.72%, and set a new all-time high. The tech heavy index created a small bodied candle with long lower shadow that reveals some underlying support near last week's closing prices. The indicators are bullish and rising, indicating that higher prices are likely, with a target near 5,250. Support is near 5,050 should a pull-back occur.
The S&P 500 made the third largest gain in today's session, 0.64%. The broad market pushed higher but was stopped short of reaching a new all-time high. Resistance is now the bottom of the previously broken up trend line which may contain any upside movement for the near term. The indicators are consistent with a trend following signal and price action remains bullish so I think this resistance will be tested in the least. A break above the trend line would be very bullish as it would create a new high and confirm the current trend following signal with a target near 2,200 in the near to short term. Support target is near 2,100 should tomorrow present a pull-back.
The Dow Jones Industrial Average made the smallest gain today, 0.58%. The blue chips had been up more than 1% but were not able to recover the gain after the mid-day retreat to support. Today's action shows support at the 30 day moving average in confirmation of the recent break above said moving average. This move is also confirmed by the indicators which are showing a strong trend following entry with the only clear resistance the current all-time high. It looks likely that the index will reach and test resistance at the all-time high with the caveat of upcoming earnings season as potential risk.
It looks like the market is once again moving higher, in line with prevailing trends. Today's move was sparked by Greece but all the major indices are setting up for potentially large moves that could sneak up on us as data comes in and we approach earnings season. The transports alone could make a 10% gain just by returning to their pre-correction peak. The NASDAQ has broken out to a new high and could go another 3% on momentum with the SPX and Dow Jones Industrial Average on the brink of new highs themselves. These moves would be supported by positive economic trends in housing and labor along with positive expectations for earnings into the end of the year and next, a combination that does not lead me to think the market is reversing. Risks at this time include the Greece bail-out, the Iranian nuclear deadline and 2nd quarter earnings which each provide reason enough to pause, but not reason to reverse. In the end Iran and Greece are near term problems, long term outlook is good so I remain bullish.
Until then, remember the trend!