Introduction

The US broad market crept closer to setting a new all-time high as traders wait for news on trade. This week promises to deliver several headlines relating to the US-China trade impasse as Trump's second round of tariffs is set to take effect Thursday, and new talks between mid-level representatives are expected as well. There is not much hope the talks will result in much at this point, so long as the talks end on a positive note, the market should be pleased.

Asain markets were mostly higher on renewed hope trade disputes between China, and the US could be resolved. The Japanese Nikkei lagged with a small loss near 0.30% while the Chinese ShangHai and Hong Kong Heng Seng both advanced more than 1.0%. European indices were positive across the board although gains were muted. The DAX led with a gain near 1.0% followed by 0.65% for the CAC and 0.40% for the FTSE.

Market Statistics

Futures trading was positive all morning. The SPX was looking at an open near 0.15% above last week's close, and that is about what we got with the first trade of the day. The index edged up quickly but met resistance at the near-term high that kept it range bound all day. The index proceeded to trade sideways within a very tight range that it held until the end of the day.

Economic Calendar

The Economy

No economic data today and very little this week. Aside from weekly jobless claims the only releases of note are the FOMC minutes and existing home sales on Wednesday and then core capital equipment orders on Friday. I think the FOMC minutes will be the most important.

Moody's Survey of Business Confidence increased by 0.3% in the last week. The index has stabilized after crashing this summer but remains low relative to the Trump presidency. Mr. Zandi says the trade war has had a notable impact on sentiment and in particular the 6-month outlook which is at the lowest levels since the current expansion began. Despite the negativity, the reading is positive and consistent with an expanding global economy.


Earnings season is all but over leaving the market little to think about except geopolitics and outlook and neither of those is stable. The earnings outlook is positive for the next six cycles, robust for the next 2, but estimates have fallen in recent weeks because of tariff uncertainty. Tariffs are affecting corporate earnings albeit a small one, and this next round of tariffs will add to that pressure. The good news is that the current quarter's earnings growth is still expected to top 20% and hold in the high double digits all year. The only bad news is that earnings growth will decelerate to near 7% in the first half of next year before accelerating in the second half of 2019.


The Dollar Index

The Dollar Index fell about -0.25% in today's action and looks like it will test for support at $95.50. The $95.50 target is a previous line of resistance that may turn into strong support now that it has been crossed. The indicators are both consistent with a move lower but do not yet indicate a move below support. The long-term outlook for the dollar remains bullish due to economic strength and outlook for FOMC rate hikes, so I am expecting to see support confirmed. This week's FOMC minutes release is a likely time to see the index confirm support or deny it because it will provide insight into both inflation and the mind of the FOMC.


The Gold Index

Gold prices moved up in today's session, rebounding from last week's lows, but does not look strong in the move. The spot price gained about 0.25% and may move higher although indications are mixed. Both MACD and stochastic are consistent with support at the $1,180 level but both are consistent with lower prices over the long-term, and neither indicates a reversal. A move up may find resistance at $1,205; a move lower may find support at $1,180.


The Gold Miners ETF GDX also rebound in today's session and gained close to 0.75%. The ETF has confirmed support at the $18.50 level and may move higher although the indicators don't support the idea of reversal. Both have formed a peak consistent with support within a downtrend but only stochastic has made a bullish crossover, and it is very weak. Today's action suggests there may be resistance at $19.00, a move above that could be bullish. My support target is now at the near-term low, just above $18.00, a break below which would be bearish.


The Oil Index

Oil prices rebound in today's session. The move is driven by reduced geopolitical fears and the expected impact of sanctions against Iran. Global supply is expected to see a decline as sanctions take effect and could push prices for WTI higher in the near-term. The risk is that WTI is now trading at $66.50 and in danger of confirming resistance at that level. If prices can regain the upper side of $66.50 a move up to $68 or $70 is possible, if prices confirm resistance a move back to $64.50 is likely.


The Oil Index gained close to 1.0% in Monday trading and is confirming support at the long-term moving average. The problem is that today's bounce is not strong and may lead to sideways trading action over the next few days or weeks. The good news is that the long-term moving average has provided strong support once this year already and is likely to do so again provided earnings outlook for the energy sector stays positive. The indicators are bearish and weak but have both formed peaks consistent with price action hitting a support target, so I am optimistic another buy signal will develop. A move below the long-term moving average would be bearish and could take the index down to 1,300.


In The News, Story Stocks and Earnings

Tesla took another dive today as investors question Musk's mental stability, the veracity of his “take-private” claims and the future of Tesla. JP Morgan issued a revised price-target stating that the funding was not secured as Musk alleged and have lowered their forecast to $195, about 35% below today's close. News the Saudi sovereign wealth fund may invest $1 billion in Tesla rival Lucid seemed to back up JP Morgan's view and helped send shares of TSLA down more than -5.0% to trade near recent lows.


Pepsico announced the acquisition of SodaStream this morning. The iconic soda brand says the deal is worth $3.2 billion or $144 per share of SODA, an 11% premium to Friday's closing price for the stock. The move will allow Pepsi another access route into homes and offices and is seen as another move shifting the company away from soft drinks and into a healthier variety of products. Shares of Pepsico tried to move up on the news but could not hold the gain and closed virtually unchanged from the previous session.


This is another big week for retail earnings with reports from Dollar General and Dollar Tree to Ross Stores, Kohl's, Gap, Lowes, and Target. Last week was a mixed bag of reports that left the XLR flat for the period; this week could be much different. The Retail Sector SPDR moved up about 1.5% in today's session and set a new high. This high is trend-following and supported by the indicators although the signal is very weak right now. A move up would be bullish and trend-following with a target near $45 based on price action so far this year. The retailers are expected to do well in the second half of this year, the Retail Federation upgraded their outlook for sales growth last week, and that is supported by economic trends.


The Indices

The Dow Jones Transportation Average led in today's action with a gain near 1.30% and is only a few points away from the all-time high territory. The indicators confirm the move and are pointing higher after firing bullish crossovers that suggest higher prices are on the way. A move up would be trend-following but may have a tough time moving to new highs. A break to new highs would be bullish and could take the index up to 12,000. If the index is not able to set new highs and hold them a retreat below 11,000 is likely.


The Dow Jones Industrial Average advanced a little more than 0.40% in today's session and came close to setting a new 6.5 month high. The index created a small green bodied candle that set a new six month high near 25,775. The move up is bullish, trend-following, and supported by the indicators so additional upside should be expected. The caveat is that resistance is possible at the 6.5 month high, just above today's close, and may cap gains.


The S&P 500 crept up nearly 0.30% in today's action but did not set a new high. The index is trading just below last week's high which is just below the all-time highs near 2,875, a key point of possible resistance. Today's move is trend following and supported by the indicators, so a test of the all-time high is probable, the question is whether the move up in prices will be strong enough to set new all-time highs and if those new highs will hold.


The NASDAQ Composite posted the smallest gain at 0.06%. The tech-heavy index created a small red bodied candle with visible lower shadow testing support at the short-term moving average and looks like it could continue to wallow at these levels. The indicators are weak but bearish and pointing lower which suggests buyers are unenthusiastic at best. A move below the 30 day EMA would be bearish for the near-term and could take the index down to the 7,600 zone.


The indices moved higher in today's action. The problem is that the indices are moving higher but look extended at these levels and are, in all cases, about to hit significant resistance targets at previous all-time highs. These all-time highs were set more than six months ago, just before the 2018 correction, and could be strong enough to keep prices from moving higher. If not, I see another rally forming that could add another 5% to the S&P 500 by the end of the year. I remain firmly bullish for long-term positions but am very cautious for near-term bullish positions because the market is between earnings cycles and the risk of a correction is high. If the market does pull back from the all-time highs, I would expect it to produce another entry point for longer-term type trades.

Until then, remember the trend!

Thomas Hughes