Market Direction Week of May 21, 2018©

Market Direction:BULLISH alert issued 2/15/2018

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. 

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Last Week Review: Stocks declined modestly on the week as investors shifted their attention to the macroeconomic environment from the earnings season. The 10-year Treasury yield reached 3.11%, its highest level since 2011, and headlines regarding trade negotiations were also in the spotlight. We expect the focus on interest rates and trade negotiations to drive volatility for the remainder of the year.

This week the European Union said it is ready to negotiate opening its markets wider to U.S. automobile imports in an effort to avert a potential trade war. President Trump had previously granted EU steel and aluminum producers an exemption from his proposed tariffs until June 1. EU leaders have said they want a permanent exemption and they are ready to talk about how the US and the EU can reduce the barriers to trade.

This week North Korea threatened to cancel President Trump's June 12th nuclear summit with Kim Jong Un, citing joint U.S.-South Korean military exercises as the reason. Later, they stated that they had no interest in a summit with the United States if it’s going to be a “one-sided” affair where it’s pressured to give up its nukes. The U.S. says it has received no formal notification from the North or South Korean governments, and has seen no formal protest of the military exercises from Kim's government.

How the market finished last week, the S&P 500 down 0.05%, the Nasdaq down 0.07%, and the Dow down 0.05%.

This Week: While the SPX moved mostly sideways this week, it has remained above the moving averages and it has re-established the long-term uptrend. While both of these things are encouraging, volatility is still somewhat elevated, volumes and open interest are rather anemic, and seasonal trends do not favor these things changing any time soon.

With earnings season essentially over, 3 weeks until the next Fed meeting, and a light economic agenda next week, I continue to see few potential upside catalysts. When the market is moving mostly sideways, more consolidation is probably about the best that can be hoped for in the absence of negative news.

Purchasing managers index (PMIs) from around the globe, but especially from the eurozone and the US, dominate the week, while UK watchers get consumer price index (CPI) and retail sales data.

Option Volumes:

At mid-month, aggregate option industry volume in May is averaging 19.1M contracts per day. That is just below the April level of 19.3M contracts per day but above the May 2017 level of 17.2M contracts per day.

Economic Calendar: FOMC Minutes (5/23), Durable Goods Orders (5/25), University of Michigan Consumer Sentiment (5/25)

Some of the major earnings announcements on deck: NDSN, AZO, TJX, TOL, TGT, FL.

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