Investors have heard the tariff warning so many times they are no longer perceived as a real threat.
After you hear the same headline repeated hundreds of times in dozens of different ways, the impact on each succeeding sound bite is diminished. It is like that nagging coworker repeating his miraculous golf shot or lunker bass story for the 87th time. You may be forced to listen to it in a group but your mind is somewhere else.
Investors have heard the tariff threats so many times they have glazed over and remain focused on other things. They know there could be a problem in the future but the shock value has faded.
The various futures are all positive on Sunday evening and volume is very low. The next three weeks are part of the summer doldrums where families try to squeeze in that last summer vacation before school starts in late August. In my part of Colorado school starts on August 14th. That means very few traders in Colorado will be active next week and that is probably the same all across the nation. The period between now and Labor Day is normally a ghost town in the market.
Next week will be positively boring in terms of economics until Thursday when we get the PPI as the first inflation report for the month. Friday has the first GDP revision for Q2 and it is not expected to change. The consumer inflation number will be of more importance because of the Fed's plan to hike rates in September.
There is a serious lack of big name stocks reporting earnings next week. There are still a lot of reports but no big cap tech stocks and only one Dow stock. The earnings deluge is abating and investor interest is going to fade.
With more than 400 S&P companies already reported the current earnings forecast is for 23.5% growth with 9.2% revenue growth. Energy has led the sectors with 123.7% earnings growth and 20.7% revenue growth. Some 79% of S&P companies have beaten estimates for earnings and 73% of companies have beaten on revenue.
The S&P is recovering nicely from its decline to support at 2,800. After multiple tests, the current rebound appears to have legs and could easily move over 2,850 this week. It will then face uptrend resistance and new high resistance around 2865-2872. The distance between the two highs would make an excellent double top formation. However, the steady gains since April are not suggesting that to be the case. Once we get to the 2,870 level there is likely to be a testing phase where some sellers appear. If the dips are still bought, we should be in good shape since earnings and the economy are still strong.
The Dow was very positive at the close with all but three components posting gains. This was exactly the opposite of the small cap sector where 63.5% of the stocks posted losses on Friday. This is a perfect picture of investor rotation. This could continue to lift the Dow but it remains a long way below the prior high of 26,616.
The Nasdaq Composite posted only a minor gain of 9 points with the big cap tech stocks almost evenly mixed between winners and losers. Thursday was a big green candle but the rest of the week was not even close to a bullish performance. The composite index needs to move back over uptrend resistance to trigger additional short covering.
The Nasdaq 100 Index was slightly more bullish with a strong 23-point gain. The NDX is facing resistance at 7400-7411 and then the prior high at 7,508. If investors decide to rotate back into tech stocks the NDX should be the winner.
The Russell is struggling. Without an immediate rebound, the candle from Friday would be a lower high and suggest the next event would be a lower low. Resistance at 1,700 is strong and I am not sure another negative trade headline would reverse the rotation back into small caps.
I would continue to be cautious until an actual trend appears. Two days of gains on the Dow/S&P is not a trend and there is strong resistance waiting for any continued rebound. On any day, we are only a headline away from a major market move in either direction. This market remains unsure of direction despite excellent fundamentals.
Enter passively and exit aggressively!
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