Market Direction Week of August 7, 2017©

Market Direction: BULLISH alert issued 11/10/2016

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: For the second week in a row, the Dow Jones Industrial Average outpaced the S&P 500 by about 1%. While the S&P 500 failed to reach new highs for the week, the Dow passed a new milestone, rising above 22,000 for the first time on Wednesday and closing at a record high on Friday. With about 75% of the companies in the S&P 500 having reported second-quarter results, earnings are up 10.1% year-over-year, handily beating estimates of 6.4% recorded at the end of June. The economic backdrop also remained positive as the economy added 209,000 jobs in July, higher than the expected 180,000, according to Bloomberg. The unemployment rate dropped to 4.3% from 4.4%, matching a 16-year low, even as the participation rate increased. Rising earnings and economic growth support higher stock prices over time.

As expected this week, BOE (Bank of England) Governor Mark Carney kept the key interest rate at 0.25% and expressed concerns about the low levels of consumer spending. Additionally, he lowered his GDP forecast for all of 2017 to +1.7% versus +1.9% previously, matching the already lowered forecast from the IMF (International Monetary Fund) in July.

This week Chinese trade authorities rebuffed President Trump’s comments about cracking down on intellectual property rights, saying it already pays “high attention” to them and it wants to avoid a trade war. However, it also reminded the US that it does have retaliatory measures “at the ready” should it need them.

Separately, North Korea conducted another successful missile test this week, saying “the entire US is now in range” of its missiles.

How the market finished last week, the S&P 500 up 0.2%, the Nasdaq down 0.4%, and the Dow up 1.2%.

This Week: In a relatively quiet week of earnings and economic data, 35 companies from the S&P are expected to report second-quarter earnings, and inflation data will be released Friday morning. Strong earnings and a strong labor market have pushed the Dow Jones Industrials to several successive highs recently, the other broad market indices and hedging activity imply that the market is probably at or close to a near-term high.

The DJI continues to set records daily (it has risen for 8 straight sessions), but the DJT and all of the other major indices (SPX, COMPX, RUT) consolidating or declining, that divergence will be difficult to maintain. Additionally, with earnings season nearly over, July payrolls already out, and no Fed meetings for about 7 more weeks, upside catalysts are going to be difficult to find.

The economic calendar sees a trade focus, with the Chinese, UK, French, and German trade data all released throughout the week. We also see oil come back into focus, with the latest OPEC monthly report, alongside the usual inventories and rig data.

Economic Calendar: JOLTS (8/8), Productivity and Costs (8/9), PPI-FD (8/10), Consumer Price Index (8/11)

Some of the major earnings announcements on deck: DIS, CBS, MYL, M, NVDA, MAR.

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