Market Direction Week of August 21, 2017©

Market Direction: BEARISH alert issued 8/10/2017

Stock on the Radar (STAR)© was launched 6/19/2017 Sunday evening. When there is a new stock recommendations for the week it is typically made available late Sunday, so investors can prepare to take a position when the market opens Monday for trading.

Last Week Review: Stocks were lower for the second week in a row as Washington-related drama continued and a terrorist attack in Barcelona weighed on investor sentiment. After reaching record-low levels of volatility in late July, the S&P 500 has logged two of its three worst trading days over the past two weeks, dropping the index 2% below its all-time high. With U.S. large-cap stocks near all-time highs, stocks aren’t inexpensive, but price-to-earnings ratios, one way of valuing stocks, have been above average for several years. Above-average valuations have a poor track record of predicting any short-term market moves. However, high valuations have frequently been followed by below-average stock returns.

Stocks pulled back last week as political turmoil in Washington heightened concerns that focus will be diverted from President Trump's pro-business agenda. We've seen similar investor reactions this year, including a 1.8% dip in March as the initial Republican health care reform bill failed to find the necessary support in the House of Representatives. Stocks reacted again in May in response to developing White House investigations, falling 1.9%, followed by a 1.4% decline in June (U.K. election, hearings on Capitol Hill) and a 1.7% dip earlier this month (escalating North Korea tensions). 

The aforementioned catalysts should not be dismissed, but we think expectations for the speed and impact of President Trump's reforms have (appropriately) come down, and geopolitical uncertainties tend to drive markets for short spurts instead of extended periods.

Instead, we think an assessment of the stock market's prospects should center on broader influences. Doing so lends a more positive view of the road ahead than last week's 0.6% drop would suggest. We think we are moving through a gradual transition of power, wherein corporate earnings growth will take the wheel from the Fed.

How the market finished last week, the S&P 500 down 0.6%, the Nasdaq down 0.6%, and the Dow down 0.8%.

This Week: Next week’s economic data set will be a lot lighter which means that the political headlines will likely garner even more attention from traders. However, out of all of the reports I think Wednesday’s crude inventories report (given the technical breakdown in energy stocks recently) and the durable goods report on Friday have the most potential to move markets.

Political uncertainty, market seasonality and technical break-down point to a bearish outlook next week.

Flash purchasing managers index (PMIs) from the eurozone and the US are the big events to look out for, along with durable goods orders on Friday.

Corporate news is dominated by full-year earnings from BHP Billiton, plus half-year figures from advertiser WPP and housebuilder Persimmon. 

Economic Calendar: Chicago Fed National Activity Index (8/21), PMI Composite Flash (8/23), Durable Goods Orders (8/25)

Some of the major earnings announcements on deck: CRM, TOL, LOW, AVGO, TIF.

$tockMarketDirection proprietary model is currently BEARISH. We strongly encourage you to monitor positions closely, exercise proper money management strategies and follow us at $tockMarketDirection for ALERTS we may issue advising a change in the current market direction. Stay tuned and follow us. If you have a testimonial or comment of how this website has helped you we would like to know, write us. Share with a friend. Cha-ching.

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