Market Direction Week of July 16, 2018©

Market Direction:BULLISH alert issued 2/15/2018 

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Last Week Review: Stocks rallied for the second week in a row amid optimism around the start of corporate earnings season, and are now less than 3% below all-time highs reached in January. Investors expect another quarter of double-digit growth driven by tax cuts and a healthy economic backdrop. Global trade remained in the headlines as the U.S. announced another round of potential tariffs on Chinese imports. These tariffs would affect about $200 billion of goods, although the suggested tariff rate (10%) would be lower than the tariff that was just implemented on $50 billion of goods (25%). These tariffs will not be going in immediately; public comments and hearings are scheduled on August 20-23, with a decision scheduled after August 31. We expect the underlying economic fundamentals to remain positive and for the markets to remain volatile, with trade being an ongoing focus. That said, we continue to believe most of the threats to raise tariffs are negotiation tactics and will be resolved over time without a significant slowdown in global growth.

President Trump attended the NATO summit in Belgium this week and among other controversial statements said that NATO allies should consider doubling their defense budgets currently set at 2% of GDP, that Germany was being held captive by Russia over natural gas pipelines, and that the UK’s approach to Brexit has made a US/UK trade deal unlikely. President Trump is scheduled to meet with Russian President Vladimir Putin next Monday in Finland.

On Tuesday (7/11) the Trump administration released a list of $200B in Chinese products on which a proposed 10% tariff are to be levied. This represents $20B in tariffs, not $200B in tariffs as some news reports stated. Due to the mandatory review process, the tariffs do not go into effect immediately, but are scheduled to be implemented at the beginning of September. Responding to the trade pressures over the past few months, China has allowed the yuan to decline more than 2% against the dollar YTD. A weaker currency makes China’s exports cheaper, thus cushioning the impact of U.S. tariffs.

How the market finished last week, the S&P 500 up 1.5%, the Nasdaq up 1.8%, and the Dow up 2.3%.

This Week: Tariff talk rattled the markets briefly this week, but traders are still buying the dips. Optimism is rising and volatility is down, perhaps because earnings season is here. The SPX appears poised for an upside breakout above 2,798.

There are more positive indicators this week than negative indicators. On one hand, I am encouraged by the fact that technical support held at the 100-day SMA rather than all the way down at the 200-day SMA, and the SPX is back to its long-term trend again. There are still no resolutions on any of the tariff war issues, and the SPX is once again hitting upside resistance. Volatility is down, earnings are strong and the indicators show improvement, so the overall outlook for next week is positive.

Economic Calendar: Retail Sales (7/16), Business Inventories (7/16), Industrial Production & Capacity Utilization (7/17), Leading Economic Indicators (7/19) 

Some of the major earnings announcements on deck: BAC, BLK, NFLX, JNJ, UNH.

$tockMarketDirection proprietary model is currently BULLISH. 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, email us. Share with a friend. Cha-ching.

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