Market Direction Week of August 27, 2018©

Market Direction:BULLISH alert issued 2/15/2018 

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Last Week Review: Last week, U.S. stocks advanced to record highs for the first time since the end of January, and are now up more than 7% year-to-date. Stocks posted their largest gains on Friday, following Federal Reserve Chair Powell's speech in Jackson Hole, where he noted that while the committee's measure of inflation has moved near its 2% target, an inflation overshoot or an overheating economy does not seem likely. This will likely keep the Federal Reserve on pace to raise short-term interest rates at a measured pace, helping extend the bull market.

Bull Market Moves Into the Top Spot as Earnings Shine

The stock market ground its way to a gain last week as optimism over still-solid fundamentals outweighed the headline risks surrounding the latest political turmoil in Washington.  Three key issues grabbed investors' attention:

1. Rising political
2. Steady as she goes for the Fed
3. The longest bull

This bull market may be vintage by historical standards, but we don't think it's at risk of breaking down. We're monitoring the gauges as some - including moderating global growth, a flattening yield curve, rising policy uncertainties, and gradually more restrictive interest rates – are beginning to signal some wear and tear, but broad fundamentals suggest there's more gas left in the tank.

On Wednesday (8/22) Commerce Secretary Wilbur Ross said that while negotiations are ongoing with the European Commission, tariffs proposed for implementation on the auto industry are likely to be delayed beyond the original August deadline. Perhaps counterintuitively, these tariffs have actually been opposed by the US auto industry as they are expected to increase costs and disrupt supply chains.   

As expected, on Thursday (8/23) the U.S. implemented a 25% tariff on another $16B in Chinese imports. Also as expected, China responded with a 25% tariff on an equal amount of American exports. Tariffs have now been put into effect on a total of $50B of goods from both countries, since the tariff battle began a few months ago. On a related note, trade talks with China, which sparked a sizable rally last week Thursday (8/16) when first announced, ended on Thursday (8/23) with little, if any, progress to report.

How the market finished last week, the S&P 500 up 0.9%, the Nasdaq up 1.7%, and the Dow up 0.5%.

This Week: Q2 earnings season is virtually over. With 483 companies (97%) of the S&P 500 reporting, it has been a very strong quarter.

Economic momentum and an imminent record high, strikes a healthy balance between the optimists and the skeptics. Just what is needed to keep the long-term trend intact.

Last week, optimism on trade talks with China sparked a pretty sharp rally, and yet when those talks yielded virtually no benefits this week, the markets held steady; another testament to the strength of the US economy. For many months analyst have expected the SPX to hit a new high by October 1st, and given that it exceeded the intraday high twice this week already, it appears it will happen even sooner.

There have been several changes in the indicators this week, and most of them were in a more bullish direction. As a result, the balance of the shorter-term indicators is pretty equal at the moment. The SPX is hitting some technical resistance at the old record highs for the second time this week. While the economic calendar is a bit heavier next week, those reports that could move the markets mostly fall in the latter half of the week.

Economic Calendar: International Trade (8/28), GDP (8/29), Personal Income & Spending (8/30), Chicago PMI (8/31)

Some of the major earnings announcements on deck: NOAH, TIF, CRM, DLTR, LULU.

$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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