E-mini S&P 500 Index (ES) Futures Technical Analysis – Benchmark Index Supported by Microsoft Surge

September E-mini S&P 500 Index futures are trading higher at the mid-session on Monday. The strength is being driven by Microsoft’s pursuit of TikTok’s U.S. operations and a clutch of upbeat quarterly earnings reports. Gains are likely being limited by Congress’ inability to agree on a fiscal coronavirus stimulus deal.

At 16:04 GMT, September E-mini S&P 500 Index futures are trading 3288.50, up 25.00 or +0.83%.

Microsoft jumped 3.7% as it said it would push ahead with talks to acquire the U.S. operations of Chinese-owned TikTok after President Donald Trump reversed course on a planned ban of the short-video app. Additionally, tech and healthcare led gains among the 11 S&P 500 sectors.

A rally in tech-related stocks and historic stimulus have lifted the S&P 500 to within 4% of its peak, but faltering macroeconomic data and a gridlock on more government stimulus have made investors cautious again.

Daily September E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed earlier in the session when buyers took out the last main top at 3284.50. A trade through 3195.00 will change the main trend to down.

After trading inside a compressed range for two weeks, the index appears ready to break out to the upside. Today’s early price action suggests there is a bid, but we’d like to see if buyers will come in on a pullback into the former main tops at 3284.50 and 3269.00.

Defending 3284.and 3269 will indicate that buyers are coming in with conviction and defending the breakout. This will also indicate that the buying was being fueled by new money coming into the market rather than buy stops.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Price Forecast – Stock Indices Continue to Climb

The S&P 500 initially pulled back just a bit during the trading session on Monday but then shot higher. We are above the 3300 level early in the session, and it does suggest that we are probably going to go looking towards the gap above, and then eventually the 3400 level. That is the all-time high, and I think it is only a matter of time before we get there due to the fact that the Federal Reserve continues to add liquidity to the markets, and therefore people are buying “things” to get away from the US dollar itself.

S&P 500 Video 04.08.20

Have been in an uptrend anyway, so regardless as to what we are doing in the short term, buying is the one thing that you should be looking at, as selling is very dangerous to do. I think there is significant support at the 3200 level which has been sustained, so that is something to keep in mind going forward. The 3400 level could be a bit difficult to get above, but once we do that should open up a move towards the 3500 level.

Even if we break down below the 3200 level the 50 day EMA is sitting at the 3130 level, and therefore I think it is only a matter of time before the buyers return on any pullback. Remember, stock markets have nothing to do with the economy, and everything to do with liquidity. As long as the Federal Reserve continues to throw money at the market, they will continue to buy things. This is a market that has been one way for a while and I just do not see it changing.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Bulls Pulled a Rabbit Out Of Their Hats

Just as I called for, the bulls are winning in the battle to break above the early June highs lastingly. And it’s not through technology, communications or the defensives – the other sectors keep more or less standing ground.

So, can I wave off the selling pressure right after the opening bell? In today’s analysis, I will look at this shot across the bow, and examine the extent to which the bulls should be concerned, or not.

I reaction to Q2 tech earnings indeed overpowered the dismal quarterly GDP figures and struggling job market. Right or wrong, the stock market takes a rear view mirror look at this historic GDP plunge, treating it as a mere mini-depression. It chooses to ignore the fact that more than 54 million Americans have filed new claims for unemployment benefits, and that a total of 118 million working age Americans aren’t working (the labor participation rate in June stood at 61.5% only).

With the new stimulus around the corner, it’s betting that the unprecedented plunge in personal consumption (concentrated in services, not goods) and likewise steep dive in consumer sentiment, would be over. Right now, such bets are still paying off.

S&P 500 in the Medium- and Short-Run

I’ll start today’s flagship Stock Trading Alert with the weekly chart perspective (charts courtesy of http://stockcharts.com ):

After preceding week’s hesitation, bullish price action revived the weekly chart again. On solid volume, prices closed above the early June highs. All by themselves, I don’t see the extended weekly indicators as a cause for concern – such rationale has to stem from the daily chart, so let’s check that one next.

Another breakout attempt above the early June highs is officially in, and its rising volume is encouraging. Or does the bearish candlestick bring more than its fair share of caution? Without a downside reversal in the nearest days, the candle merely tells a story of a successful reversal of Friday’s losses.

The credit markets still lean the bullish way.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) extended gains on Friday, having earlier repelled the bears. The lower volume isn’t an issue when examining the previous volume spike. Take a look at late June, and the relative volume differential in the session following the washout one. That’s why I see Friday’s decreasing volume vs. Thursday’s high one, as no cause for concern.

Both the leading credit market ratios (please see this and many more charts at my home site) – high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) – are broadly supporting each other. And that bodes well for the stock upswing to go on.

The ratio of high yield corporate bonds to all corporate bonds (PHB:$DJCB) is in an uptrend again, and such return of the animal spirits in bonds is constructive for the stock market bulls.

The ratio of stocks to Treasuries ($SPX:$UST) paints a bit more cautious picture. Yet, its message is still of the stock bulls enjoying the benefit of the doubt.

The overlaid S&P 500 closing prices (black line) against the HYG:SHY ratio show that Friday’s close didn’t leave stocks in a dangerously extended position. Should the HYG:SHY tailwind last as I see it likely to, then stock prices have a floor nearby.

Smallcaps and Emerging Markets

The Russell 2000 (IWM ETF) is trading weak on a very short-term basis – it didn’t manage to even close unchanged while the S&P 500 moved up. Should they have performed better, that would point to a more broad-based advance within the S&P 500 – and indeed, the daily market breadth indicators in the 500-strong index have seen better days, politely put. But back to smallcaps.

Indeed, the IWM ETF is in a vulnerable position after having defended its 200-day moving average. Should its weakness take a more impactful turn, that would surely affect the S&P 500.

Emerging markets keep their healthy consolidation going, and are slowly again approaching their early July highs. This chart’s message certainly isn’t bearish for the S&P 500.

S&P 500 Sectors in Focus

Technology (XLK ETF) is all the rage again, making new 2020 highs. Pretty extended, but the much talked about correction, hasn’t come and isn’t really here. The key driver of Friday’s S&P 500 isn’t disappointing.

Crucially, semiconductors (XSD ETF) aren’t underperforming in any dramatic fashion. Dramatic – that’s an understatement, because one day’s weakness doesn’t cut that. Move on, no crack in the dam here.

Healthcare (XLV ETF) merely refused to decline profoundly on Friday, and isn’t really acting as a market leader over the past few session. Step aside though, and the chart is healthy, and I look for an upside surprise here quite soon. Perhaps some more vaccine news slash hype would help the lackluster financials (XLF ETF) performance too.

Summary

Summing up, Friday’s S&P 500 reversal is keeping the breakout attempt above the early June highs alive. Credit markets keep acting strong, and the rise in Treasuries just serves to power the TINA (there is no alternative) trade as it pushes investors farther out on the risk curve. Farther than they would be comfortable, but still helping the stock bull at the moment. One of the key watchouts is the daily market breadth, where both the advance-decline line and advance-decline volume remain in the bearish territory. Overall, the balance of risks remains skewed to the upside, though the bulls would benefit from a tight stop-loss locking recent gains.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

U.S. Stocks Set To Open Higher As Traders Push Equities To Multi-Month Highs

Euro Area Manufacturing Gets Back To Expansion Mode

S&P 500 futures are up in premarket trading in sympathy with European bourses which are gaining ground after the release of Euro Area Manufacturing PMI report.

The report showed that Euro Area Manufacturing PMI increased from 47.4 in June to 51.8 in July. Numbers above 50 show expansion. The return to growth is an encouraging development which may provide additional support to riskier assets.

Today, the U.S. will also release its Manufacturing PMI data. Analysts expect that U.S. Manufacturing PMI increased from 49.8 in June to 51.3 in July. A better-than-expected Manufacturing PMI report can provide more support to U.S. stocks and push them higher.

Republicans And Democrats Fail To Reach Consensus On New Coronavirus Aid Package

Republicans and Democrats continued their negotiations over the weekend but did not manage to reach consensus on the coronavirus aid deal.

Democrats want to preserve special unemployment benefits of $600 per week while Republicans are worried about costs and want to cut benefits to $200 per week.

As usual, there are other negotiating points, but the unemployment benefit topic remains the key source of discord.

Few analysts doubt that the U.S. needs to provide additional support to consumers to keep spending at healthy levels. The U.S. economy is dependent on consumer activity so a decline in spending could significantly hurt the recovery.

Microsoft May Buy TikTok’s U.S. operations

According to a recent Reuters report, U.S. President Donald Trump gave Microsoft 45 days to negotiate a deal to buy TikTok’s U.S. operations. Microsoft has already discussed the potential deal with Trump.

The U.S. has accused Chinese software companies of sharing data of U.S. citizens with the Chinese government, and TikTok is the first company in Washington’s crosshairs.

More Chinese companies will soon feel the same pressure as Secretary of State Mike Pompeo promised that Donald Trump would announce new measures to safeguard U.S. citizens’ data in the upcoming days.

China stated that it opposed actions against its software companies, and retaliation in some form is almost guaranteed.

For now, the U.S. stock market completely ignores another increase in U.S. – China tensions as it is focused on upbeat Manufacturing PMI data from Europe and expectations of good Manufacturing PMI data from the U.S.

For a look at all of today’s economic events, check out our economic calendar.

Clorox Sales Up 22% in June Quarter Amid COVID-19 Panic-Buying; Target Price $256

Clorox, a $9 billion market cap consumer products company, reported that its sales surged 22% in the June quarter, including double-digit growth across all reportable segments as people spent more time cleaning and disinfecting their homes due to the COVID-19 pandemic, sending its shares up over 1% pre-market trading.

Clorox said it delivered earnings of $310 million, or $2.41 diluted EPS in the fourth quarter, which ended June 30, 2020, compared to $241 million, or $1.88 diluted EPS, the same quarter a year earlier, representing a 28% increase in diluted earnings per share. The company’s fourth-quarter gross margin increased 170 basis points to 46.8% from 45.1% in the year-ago quarter.

The board of directors of the Clorox Company also announced that, effective Sept. 14, 2020, Linda Rendle will be promoted to chief executive officer and elected to the company’s board of directors. Benno Dorer will continue serving as the board’s executive chair.

Clorox shares closed 2.27% higher at $236.51 on Friday, increased more than 50% since the beginning of 2020.

Clorox stock forecast

Nine analysts forecast the average price in 12 months at $202.89 with a high forecast of $256.00 and a low forecast of $164.00. The average price target represents a -14.22% decrease from the last price of $236.51. From those nine, three analysts rated ‘Buy’, four analysts rated ‘Hold’ and three rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $193 with a high of $259 under a bull scenario and $145 under the worst-case scenario. Deutsche Bank raised its target price to $223 from $174. Several other equity analysts have also updated their stock outlook. Clorox had its price target raised by investment analysts at JPMorgan Chase & Co. to $235 from $203. BofA Global Research raised price objective to $235 from $215.

We think it is good to buy at the current level with a target of $256 as 100-day Moving Average and 100-200-day MACD Oscillator signal a mild buying opportunity.

Analyst comment

“Structural Long-term Topline Challenges Relative to HPC Peers: While CLX’s near-term topline is likely to be robustly supported by a COVID-related demand boost for cleaning products (we project +17.5% for 2H20e, driven by the 25% of CLX’s business related to cleaning), we believe that longer-term, Clorox remains over-indexed to low-growth product categories, with high exposure to the US,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“Valuation Too High: We view CLX valuation of 20.5x CY21e EV/EBITDA and 30x CY21e P/E as too high (in comparison to PG at 23x CY21e P/E) considering limited LT EPS growth and strategic potential relative to peers post a beneficial COVID impact,” he added.

Upside and Downside Risks

Topline and margin upside from improved pricing, longer-lasting COVID-related demand impact, better than expected volume, declining commodity costs, successful innovation driving recaptured shelf space, consolidation potential, and cost-cutting, Morgan Stanley highlighted as upside risks to Clorox.

Pricing doesn’t take hold, worsening volumes, higher than expected commodity inflation, heightened competition from private label, Morgan Stanley highlighted as downside risks.

Asian Shares Mixed; Nikkei Jumps Over 2 Percent after Yen Plunge, Shanghai Boosted by Manufacturing PMI

The major Asia-Pacific stock indexes finished mixed on Monday but mostly lower with both the Nikkei and Shanghai indexes posting more than 1.50% gains while the others sputtered. Japanese shares snapped six consecutive sessions of losses on Monday after the Yen retreated from a 4-1/2-month high against the dollar. Chinese stock jumped as key manufacturing data came in above expectations.

On Monday, Japan’s Nikkei 225 Index settled at 22195.38, up 485.38 or +2.24%. Hong Kong’s Hang Seng Index closed at 24458.13, down 137.22 or -0.56% and South Korea’s KOSPI Index finished at 2251.04, up 1.67 or -0.07%.

China’s Shanghai Index settled at 3367.97, up 57.96 or +1.75% and Australia’s S&P/ASX 200 Index closed at 5926.10, down 1.70 or -0.03%.

China’s Factory Activity Expanded

Sentiment was helped by a survey showing China’s factory activity expanded at the fastest pace in nearly a decade in July, with the Caixin/Markit PMI at 52.8, above expectations for a reading of 51.3 by economists in a Reuters poll. PMI readings above 50 signify expansion, while those that fall below that figure indicate contraction.

US-China Tensions Remain at Forefront

Tensions between Washington and Beijing likely continued being watched by investors, with U.S. Secretary of State Mike Pompeo saying Sunday that U.S. President Donald Trump is set to announce “in the coming days” new actions related to Chinese software companies viewed by his administration as a national security threat.

On Friday, Trump told reporters he will act soon to ban Chinese-owned video app TikTok from the U.S., according to NBC News. Microsoft on Sunday confirmed it has held talks to buy TikTok in the U.S. from Chinese tech firm ByteDance.

Nikkei Rebounds on Wall Street Gains, Yen’s Retreat

Japanese shares ended six straight sessions of losses on Monday after the Japanese Yen retreated from a 4-1/2-month high against the dollar in a short squeeze. Exporters got a boost as the Yen fell to a low of 106.40 Yen against the dollar, moving away from a high of 104.195 yen touched on Friday.

Hang Seng Dragged Down by HSBC First-Half Profits Miss

HSBC reported a 65% fall in pre-tax profits for the first half of 2020 to $4.3 billion – missing analysts’ expectations.

Chief Executive Noel Quinn said the bank was “impacted by the COVID-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility.”

HSBC shares in Hong Kong tumbled by more than 3% when trading resumed after a lunch break.

For a look at all of today’s economic events, check out our economic calendar.

Marathon Petroleum to Sell Speedway for $21 billion to 7-Eleven; Target Price $48

Marathon Petroleum, an American petroleum refining, marketing, and transportation company, announced that it has entered into an agreement with 7-Eleven, a wholly-owned indirect subsidiary of Seven & i Holdings, to sell its Speedway gas stations in the United States for $21 billion in cash.

The $21 billion valuation represents a significant value unlock. The 100% cash transaction immediately captures value for MPC shareholders relative to potential valuation risks of other alternatives, the company said.

“We estimate a 17% equity valuation uplift from the transaction with proceeds evenly going to buybacks and debt, though that allocation will not be decided until deal close. Rating and price target under review,” said Jason Gabelman, equity analyst at Cowen.

“We expect MPC to target net debt at <1x mid-cycle EBITDA post-sale. We estimate $2.2 billion mid-cycle refining EBITDA plus $2.2 billion distributions from the MLP. This could mean $7.5 billion of sale proceeds go to debt paydown with the remainder to share buybacks, though one could argue the stable distributions from the MLP mean a higher debt multiple. The equity value change until deal close will impact how many shares will ultimately be repurchased and could be a driver of value creation from this sale.”

The deal is expected to result in after-tax cash proceeds of approximately $16.5 billion. Marathon Petroleum expects to use the proceeds to both repay debt to protect its investment-grade credit profile and return capital to shareholders.

The deal is anticipated to close in the first quarter of next year, subject to customary closing conditions and regulatory approvals. 7-Eleven said the agreement will help bring the total number of stores in the world’s biggest economy and Canada to nearly 14,000.

“We think this is a positive outcome for Marathon Petroleum, with the company receiving a price that’s above expectations (which we peg at ~$17-18 billion pre-tax), crystallizing Speedway value immediately, and bringing in more cash for greater financial flexibility (vs. a spin),” said Benny Wong, equity analyst at Morgan Stanley.

Following this deal, Seven & i shares fell more than 8% to JPY 2937.5 on Monday, the biggest one-day drop since March. Marathon Petroleum shares rose 0.5% to $38.38 in after-hours trading.

Executive comment

“This transaction marks a milestone on the strategic priorities we outlined earlier this year,” Michael J. Hennigan, president and chief executive officer said a press release.

“Our announcement crystalizes the significant value of the Speedway business, creates certainty around value realization and delivers on our commitment to unlock the value of our assets.  At the same time, the establishment of a long-term strategic relationship with 7-Eleven creates opportunities to improve our commercial performance.”

Marathon Petroleum stock forecast

Eleven analysts forecast the average price in 12 months at $47.09 with a high forecast of $61.00 and a low forecast of $38.00. The average price target represents a 23.27% increase from the last price of $38.20. From those 11, nine analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Marathon Petroleum had its price target trimmed by Scotiabank to $48 from $51 The firm currently has a sector outperform rating on the oil and gas company’s stock. Mizuho lowered its price target to $52 from $54. Jefferies cuts target price to $48 from $50.

Several other equity analysts have also updated their stock outlook. Jefferies Financial Group increased their target price on shares of Marathon Petroleum to $48.00 from $50.00. Morgan Stanley target price is $48 with a high of $60 under a bull scenario and $28 under the worst-case scenario. We think it is good to hold for now as 100-day Moving Average signals a mild selling opportunity.

Analyst comment

“Marathon Petroleum offers multiple ways to win. We expect MPC to benefit from the overall decline in crude prices, although we caution refined product demand risk could weigh on valuation. That said, the stock offers idiosyncratic upside as the company is undergoing a strategic review to unlock discounted value, which includes spinning out Speedway,” Morgan Stanley’s Wong said.

“We see a SoTP upside to ~$50/shr. Our SoTP is as follows: we assign $24/shr to retail, $21/shr to midstream, and $24/shr to refining. Adjusted for assets/liabilities, net debt, and synergies, our SoTP suggests a ~$51/shr valuation (>47% upside),” he added.

Upside and Downside Risks

Oil prices stay depressed or decline further; Successful spin-off of Speedway retail fuel business; Potential separation of MPLX and conversion to a C-Corp; Material widening of sweet-sour differentials, Morgan Stanley highlighted as upside risks to Marathon Petroleum.

Demand risk and Sweet-sour differentials narrow materially are two major downside risks.

European Equities: Economic Data and the U.S Stimulus Bill in Focus

Economic Calendar:

Monday, 3rd August

Spanish Manufacturing PMI (Jul)

Italian Manufacturing PMI (Jul)

French Manufacturing PMI (Jul) Final

German Manufacturing PMI (Jul) Final

Eurozone Manufacturing PMI (Jul) Final

Wednesday, 5th August

Spanish Services PMI (Jul)

Italian Services PMI (Jul)

French Services PMI (Jul) Final

German Services PMI (Jul) Final

Eurozone Markit Composite PMI (Jul) Final

Eurozone Services PMI (Jul) Final

Eurozone Retail Sales (MoM) (Jun)

Thursday, 6th August

German Factory Orders (MoM) (Jun)

IHS Markit Construction PMI (Jul)

Friday, 7th August

German Industrial Production (MoM) (Jun)

German Trade Balance (Jun)

French Non-Farm Payrolls (QoQ) (Q2)

The Majors

It was another bearish day for the European majors on Friday, with the CAC40 sliding by 1.43% to lead the way. The DAX30 and EuroStoxx600 weren’t far behind, with losses of 0.54% and 0.89% respectively.

Negative sentiment towards the economic outlook weighed as the markets responded further to dire 2nd quarter GDP numbers.

The disappointing figures together with the upward trend in new COVID-19 cases continued to raise doubts over a speedy economic recovery.

In the week, Spain and the UK were amongst countries having to reintroduce containment measures.

The negative sentiment ultimately overshadowed upbeat tech earnings results on the day.

The Stats

It was another busy day on the Eurozone economic calendar. Key stats included 2nd quarter GDP from France and the Eurozone. June retail sales figures from France and Germany and Eurozone and member state prelim inflation figures were also in focus.

It was the GDP numbers that weighed, however. In the 2nd quarter, the French economy contracted by 13.8%, with the Eurozone economy contracting by 12.1%.

German retail sales rose by 5.9% in June, following a 12.7% jump in May, with French consumer spending up by 9.0%. In May, French consumer spending had surged by 37.4%.

While both sets of numbers came in ahead of forecasts there were not good enough to shift the mood.

From the U.S

Economic data included June’s personal spending and inflation figures. While inflationary pressures eased, personal spending was on the rise at the end of the quarter.

The increase was not enough to ease concerns over the U.S economic outlook, however.

Personal spending rose by 5.6%, while the annual rate of inflation softened from 1.0% to 0.90% In May, personal spending had jumped by 8.5%.

Late in the European session, finalized consumer sentiment figures were revised down, adding to the market angst.

The Market Movers

For the DAX: It was another particularly bearish day for the auto sector on Friday. Continental and Volkswagen slid by 5.00% and by 4.39% to lead the way down. BMW and Daimler saw more modest losses of 3.85% and 3.67% respectively.

Volkswagen continued to struggle after having reported an operating loss for the 1st half and a dividend cut on Thursday.

It was a mixed day for the banks, however. While Deutsche Bank fell by 0.38%, Commerzbank rose by 1.02%.

From the CAC, it was another bearish day for the banks. Soc Gen and Credit Agricole both fell by 1.43%, with BNP Paribas falling by 0.77%.

It was a more bearish day for the French auto sector. While Peugeot slid by 3.19%, Renault tumbled by a further 7.86% following a 9.26% slide on Thursday.

Air France-KLM joined the broader pack, falling by 2.35%, with Airbus SE ending the day down by 2.10%

On the VIX Index

It was a back into the red for the VIX on Friday. Partially reversing a 2.74% gain from Thursday, the VIX fell by 1.21% to end the day at 24.46.

The downside came as the U.S equity markets brushed off dire economic data in response to positive tech earnings results.

The S&P500 and NASDAQ rose by 0.77% and by 1.49% respectively, with the Dow gaining 0.44%.

VIX 03/08/20 Daily Chart

 

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar. Key stats July manufacturing PMIs from Italy and Spain.

Finalized PMIs are also due out of France, Germany, and the Eurozone.

While the markets will focus on Germany’s numbers, expect Italy and the Eurozone’s PMIs to also influence.

From the U.S

The markets preferred ISM Manufacturing PMI and finalized Market Manufacturing PMI figures are due out.

Expect the ISM survey figures to have the greatest impact on the markets.

Away from the economic calendar, corporate earnings, and updates from Capitol Hill on the passage of the COVID-19 stimulus package will also influence.

From the weekend, COVID-19 updates were negative, however, which will test the markets early on.

The Latest Coronavirus Figures

According to figures at the time of writing, the number of new coronavirus cases rose by 249,532 to 18,231,469 on Sunday. On Saturday, the number of new cases had risen by 250,087. The daily increase was lower than Saturday’s rise while up from 213,347 new cases from the previous Sunday.

Germany, Italy, and Spain reported 623 new cases on Sunday, which was down from 707 new cases on Saturday. On the previous Saturday, 663 new cases had been reported.

From the U.S, the total number of cases rose by 50,702 to 4,813,647 on Sunday. On Saturday, the total number of cases had increased by 60,171. On Sunday, 26th July, a total of 56,130 new cases had been reported.

The Futures

In the futures markets, at the time of writing, the DAX was up by 7.5 points, while the Dow was down by 45 points. A pickup in manufacturing sector activity in China provided the DAX with support ahead of the open.

For a look at all of today’s economic events, check out our economic calendar.

Positives to Outweigh Negatives, Constructive on Stocks and Other Risk Assets: Fidelity’s Timmer

The direction in which the stock market may head is not as clear as it was at the end of March as some things are working in favour of stocks going up and also against them; however, the positives continue to outweigh the negatives, said Fidelity’s Global Asset Allocation Division director of global macro, Jurrien Timmer, who remains constructive on stocks and other risk assets in general.

So far, the deadly virus has infected more than 18 million people in over 210 countries and killed nearly 700 thousand, wherein the United States is the worst hit. Despite that, stocks continue to act as if we have already beaten the COVID-19, the infectious disease caused by the most recently discovered coronavirus.

The S&P 500 index has gained 50% since hitting a three-year low on March 23 of 2191.86, largely spurred by the Federal Reserve’s massive stimulus and COVID-19 vaccine optimism. However, the year is already halfway through and now it rests with the stock market to prove that it was right about a sharp V-shaped rebound in economic growth.

Since nearly all the country’s economic activity has been suspended since late March amid rising concerns about the spread of the coronavirus disease, federal governments and central banks around the world has spent trillions of dollars trying to help restart the economy and provide some relief to the financial markets.

That stimulus has given the initial impetus to stock as liquidity increased in the debt markets and volatility subdued in several markets. However, the long-term impact of these massive stimuli on the economy and the financial markets is unknown. The S&P 500 ended 1% higher at 3271.12 on Friday, just 122.4 points below its all-time high of 3,393.52 registered on February 19.

The COVID-19 related collapse in earnings will be reversed slowly as the economy re-opens and the recovery matures into expansion in 2021, causing a full recovery in the market to the February highs by the end of this year. The S&P 500 stock index to hit 3,400 By the end of this year and 3,600 next year; earnings to also rebound in 2021, according to Mizuho Securities.

Empirically, big price gains, combined with a large retracement after a fall amid strength in market broadness – a trend that can be seen in the S&P 500 today, has always led to a start of a bull market.

“If there ever was a pivotal moment for making a call on which direction the next 10% or 25% move will be for the S&P 500, now is it, I believe. A few months ago, it seemed to me, it was a relatively simple call, at least based on the study of market history. The stock market typically rallies after the type of historic selling climax experienced in late March, and this time has not been any different so far. But after a 46% rally (which never produced a retest) I think it’s much more of a toss-up now,” said Fidelity’s Global Asset Allocation Division director of global macro, Jurrien Timmer.

On the positives, Fidelity’s Timmer said:

“On the plus side, the economy has bottomed and is recovering, with earnings growth following along. Earnings season is looking good so far, with 85% of companies beating estimates by an average of 15 percentage points. It’s still early days for earnings season with 181 companies reporting, and the differences between estimates and reported earnings are unusually large given how little guidance there has been on the earnings front. The policy response has been another plus, of course. The Fed is keeping its foot on the monetary gas pedal, and more fiscal relief may be on the way as well, as transfer payments threaten to dry up. The promise that the Fed and Treasury (and their global counterparts) can build a bridge across the COVID-19 abyss and on to the other side of this pandemic has been an important factor behind the market’s powerful rally,” Fidelity’s Timmer said.

“The tape (momentum and breadth) has been another plus for the US market. The sentiment picture is another positive. Finally, on the plus side, there appear to be a number of potential positive developments underway in terms of COVID-19 treatments and vaccines. This prospect, along with the Fed, have put a floor under the market, including the more economically sensitive ‘reopen’ sectors,” he added.

On the negatives, Fidelity’s Timmer said

“COVID-19 continues to burn its way through sections of the U.S. and the world, and this is causing some states to delay or reverse their reopening plans. As a result, some of the high-frequency economic indicators are suggesting that the economy is starting to stall out following the initially strong V-shaped recovery. The longer the recovery gets dragged out, the greater the risk that this V could turn into a U or L, and that the liquidity crisis that the Fed was able to mitigate will turn into a solvency crisis not unlike 2008,” Fidelity’s Timmer said.

“The risk is not that the economy will not recover, just that it won’t recover back to its full potential. If the economy recovers, but only to say 70% of what it was pre-COVID, then it will be a long slog back to normal. Right now, the stock market seems to be priced for something quicker. On top of this we have a pivotal election in a few months, bringing with it various potential policy outcomes, which could eventually affect corporate taxes and U.S.-China relations,” he added.

“A well-diversified portfolio of both growth stocks and deep value stocks (especially emerging market and non-US developed), gold and Treasury Inflation-Protected Securities (TIPS), and long-duration bonds. A portfolio similar to this, in my view, is pretty close to an all-weather portfolio,” he concluded.

Precious Metals Weekend Wrap-up August 1, 2020

Now that we have encouraging data, we should be able to make informed decisions concerning on how to move forward. Unfortunately, politicians are making this much worse than it needs to be. The damage they have done to the economy is immeasurable.

It’s reported that 55% of restaurants on Yelp have shut their doors for good. And some estimate that 33% of the hotels in the U.S. could go out of business. In my opinion, the economy is yet to feel the long-term consequences of this economic shutdown.

Gold reached new all-time highs on the back of a declining dollar. I expected a breakout above $2000, but not until 2021 or 2022. What happens next depends on the dollar. If the dollar stabilizes and turns higher, then gold should correct and begin to consolidate. If the dollar continues to crash, then gold could enter a runaway move higher.

The Fed announced no change in its interest rate policy on Wednesday and said it would do everything necessary to support the economy. Sometimes gold and the dollar reverse trends (top or bottom) just after a Fed decision. The dollar formed a bullish engulfing candle on Friday, supporting the potential for a reversal.

The gold cycle indicator remains pegged at 450, and gold is very overbought.

US DOLLAR

Gold is higher as a direct result of the crashing dollar. The dollar is incredibly oversold and due for a bottom, which would imply a top in gold. I’ve mentioned before how prices often reverse on or just after a crucial Fed meeting. The dollar formed a bullish engulfing candle on Friday, 2-days after Wednesday’s announcement. Closing above the 10-day EMA (currently 94.11) next week would sponsor a bottom.

GOLD WEEKLY

It’s rare for prices to slice through a significant resistance level without consolidating first. And for that reason, I’m suspicious of the recent breakout to new all-time highs. When momentum is strong, like now, prices will sometimes overshoot a major level. If this is a momentum overshoot, then gold should stay below $2050 and finally turn lower. A sustained advance above $2100 would signal a potential runaway move.

GOLD DAILY

Gold reached an intraday high of $2005.40 on Friday. Prices are very overbought, and the cycle indicator is maxed out at 450. The trend is well-overdue for a correction. A daily finish below $1971.40 would secure a swing high and signal a potential top.

SILVER

After breaking out above $20.00, silver exploded to our $26.00 target. Prices are overbought and due for a pullback. Closing below $22.50 would support a top. To extend this advance, prices would have to close above the $26.27 spike high.

PLATINUM

Platinum is the last precious metal to breakout to fresh highs. Prices would have to close above $1050 to signal a breakout. Whereas dropping below the cycle trendline would indicate a correction.

GDX

On Thursday, miners closed below Monday’s gap, issuing a potential exhaustion gap sell signal. Miners would have to close above $44.46 to reverse the short-term bearish signal. To confirm a multi-week correction – GDX would have to close below $36.87.

GDXJ

Juniors also closed below Monday’s gap, triggering a short-term sell signal – prices would have to close above $63.31 to reverse it. Otherwise, breaking below $50.00 would confirm the onset of a multi-week cycle correction.

SPY

Stocks consolidated throughout the week but managed to close above the short-term trendline on Friday. It looks like prices will attack the February 329 gap next week. Like gold, the trend is incredibly overbought and ready for a correction.

Have a safe and pleasant weekend.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit here.

European Equities: A Month in Review – July 2020

The Majors

It was a mixed month for the European majors, with a final week sell-off reversing gains from earlier in the month.

The DAX30 ended the month up by just 0.02%, while the CAC40 and EuroStoxx600 fell by 3.49% and by 2.98% respectively.

Disappointing economic data from the Eurozone and the U.S, together with a mixed bag on the earnings front weighed late in the month.

Away from the economic calendar, U.S – China tensions and a 2nd wave of the COVID-19 pandemic added to the market angst.

For the European majors, EU member state agreement on the structure of the COVID-19 Recovery Fund had provided some support.

Coupled with news of progress towards a COVID-19 vaccine and positive economic data, the DAX30 had been up by as much as 7% before falling back to sub-13,000 levels.

The Stats

It was a busy month on the Eurozone economic calendar. July’s prelim private sector PMIs and 2nd quarter GDP number were the headline stats of the month.

While June had delivered a less gloomy picture, July delivered a mixed set of stats for the markets to consider.

In the early part of the month, economic data from Germany continued to deliver positive numbers, with factory orders and industrial production seeing further upside.

Mid-month prelim July private sector PMIs from France, Germany, and the Eurozone had also given the majors a boost.

The Eurozone’s Composite PMI rose from 48.5 to 54.8, according to prelim figures.

Late in the month, however, 2nd quarter GDP numbers for France, Germany, and the Eurozone weighed on the majors.

Germany’s economy contracted by 10.10%, France’s by 13.80%, and the Eurozone’s by 12.10% in the quarter.

From the U.S

While nonfarm payrolls, the weekly jobless claims, and private sector PMI numbers had provided support early in the month, it was the weekly jobless claims, consumer confidence, and 2nd quarter GDP numbers that weighed late in the month.

2 consecutive weekly jobless claims increases and a 32.9% contraction in the U.S economy weighed on risk appetite at the month-end.

Consumer confidence also weakened in July as the U.S struggled with a 2nd wave of the COVID-19 pandemic.

Geopolitics and a failure by the U.S government to pass through the 2nd COVID-19 stimulus package was also market negative.

Monetary Policy

On the monetary policy front, there were no surprises as the ECB left monetary policy unchanged. There had been reports of discord amongst members ahead of the meeting.

The FED also left monetary policy unchanged, while assuring the markets of continued and unwavering support.

The Market Movers

For the DAX: It was a bearish month for the auto sector. Continental and Volkswagen slid by 6.49% and by 7.78% respectively to lead the way down. BMW and Daimler saw more modest losses of 4.14% and 2.64% respectively.

It was a mixed month for the banks, however. Deutsche Bank slid by 10.51%, while Commerzbank ended the month up by 9.63%.

From the CAC, it was a bearish month for the banking sector. BNP Paribas and Credit Agricole fell by 3.53% and by 3.56% respectively, while Soc Gen slid by 12.30%.

It was also a bearish month for the auto sector. Peugeot fell by 5.80%, with Renault tumbling by 11.16%

Air France-KLM and Airbus SE also saw red, with the pair seeing losses of 13.49% and 2.38% respectively.

Corporate earnings contributed to the moves.

On the VIX Index

The VIX slid by 19.62% in July, delivering a 3rd month in the red out of 4. Reversing a 10.61% rise in June, the VIX ended the month at 24.46.

The VIX had seen 4 consecutive months in the green before the downward trend began in April.

Across the U.S equity markets, the S&P500 rose by 5.51%, with the Dow and NASDAQ gaining 2.38% and 6.82% respectively.

The FED and bank and tech stock earnings provided support amidst a rising number of new COVID-19 cases in the month.

The Month Ahead

It’s another busy month ahead on the Eurozone economic calendar.

An upward trend in the private sector PMIs through to August would need to continue to ease concerns of a further slowdown in the recovery.

The markets would need to continue to see a further pickup in both business and consumer confidence to support consumption.

Consumers would need to see improved labor market conditions, however, to fuel consumption and a service sector-driven economic recovery.

On the monetary policy front, expect the ECB to continue to assure the markets of further support.

From elsewhere, we continue to expect stats from the U.S and China to also garner plenty of attention and have plenty of influence.

Geopolitics and COVID-19 will also remain in focus. In July, Trump had looked to distract U.S voters, which led to a diplomatic spat with China. More of the same could be on the cards in the coming month.

On the Presidential Election front, Trump remains behind in the polls, which suggests more spin and distraction. In the final week of July, Trump had even tweeted a desire to delay the Presidential Election…

E-mini S&P 500 Index (ES) Futures Technical Analysis – Chart Pattern Indicates Heightened Volatility

September E-mini S&P 500 Index futures finished higher after clawing back earlier losses in what proved to be a very volatile trading session. Stocks opened higher then fell to their lows of the session as concerns about the economic damage from the COVID-19 pandemic replaced early bullishness from stunning quarterly earnings reports by Apple, Amazon.com and Facebook. However, the market managed to recapture those losses into the futures market close despite a lower cash market close.

On Friday, September E-mini S&P 500 Index futures settled at 3269.50, up 20.75 or +0.63%.

The S&P Technology Sector, a major component of the overall index, was boosted by a strong performance in shares of all three tech heavyweights.

Apple Inc shared surged to reach a record high in the wake of blowout quarterly earnings results and a four-for one stock split announcement.

Amazon.com Inc jumped after posting the biggest profit in its 26-year history, while Facebook Inc gained after it reported better-than-expected revenue.

Google-parent Alphabet Inc, on the other hand, fell as quarterly sales dipped for the first time in its 16 years as a public company.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed on Thursday, but the rally fizzled earlier today after an attempted breakout over 3269.00 failed to attract enough buyers to extend the move. Late in the session, however, the index managed to reaffirm the uptrend.

The main trend will change to down on a trade through 3195.00, but were not likely to see an acceleration to the downside unless the selling is strong enough to talk out the next main bottom at 3191.50.

The short-term range is 3284.50 – 3191.50. Its 50% level at 3238.00 appears to be controlling the near-term direction of the index. Traders straddled this price level four times this week as they tried to establish direction.

The short-term range is 3105.25 to 3284.50. Its retracement zone at 3194.75 to 3173.75 is support. It has been propping up the index since July 15.

The main range is 2923.75 to 3284.50. Its retracement zone at 3104.00 to 3061.50 is another potential support zone.

Short-Term Outlook

Based on this week’s price action, it looks like we are likely to experience a volatile trade next week because of the tight trading range. Traders don’t like to see the same prices every day. They want movement and action.

A volatile breakout to the upside could start on a sustained move over 3238.00. Other potential trigger points for an acceleration to the upside are 3273.75 and 3284.50.

On the downside, crossing to the weak side of the short-term Fibonacci level at 3173.75 is likely to draw in the short-sellers. Also contributing to a potential acceleration to the downside will be sell stops placed under 3173.75.

If traders hit this level with selling conviction then don’t be surprised by an acceleration to the downside with the first target a support cluster at 3105.25 to 3104.00.

For a look at all of today’s economic events, check out our economic calendar.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Upside Momentum Can Build Over 10768.75

September E-mini NASDAQ-100 Index futures surged more than 1% on Friday, boosted by strong earnings from some of the largest U.S. companies, however, gains may have been limited by uncertainty about the government’s next round of coronavirus aid.

The index was primarily boosted by strong performances by Apple Inc, Amazon.com and Facebook. Perhaps putting a lid on prices was a poor performance by Google parent Alphabet. The four companies are among the top five in market capitalization. Additionally, Apple’s gain pushed it ahead of Saudi Aramco as the world’s most valuable public company, according to Refinitiv data.

On Friday, September E-mini NASDAQ-100 Index futures settled at 10914.25, up 120.25 or 1.10%.

Meanwhile, the White House and Democrats were still negotiating on coronavirus relief aid, but not yet on a path toward reaching a deal, according to House of Representatives Speaker Nancy Pelosi, hours before the expiration of a federal unemployment benefit.

Daily September E-mini NASDAQ-100 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The trend turned up on Thursday after the index spent nearly a week in a downtrend.

A trade through 10939.00 will signal a resumption of the uptrend while a move through 11058.00 to 11058.50 will reaffirm the uptrend. The main trend will change to down on a move through 10502.75.

From the bottom up, the intermediate range is 9728.75 to 11058.50. Its retracement zone at 10393.50 to 10236.75 is the key support. It stopped the selling on July 24 at 10301.00.

The short-term range is 11058.00 to 10301.00. Its retracement zone at 10679.50 to 10768.75 is now support after spending most of the week as resistance.

Short-Term Outlook

Holding above the retracement zone at 10768.75 to 10679.50 will be the key to sustaining the upside momentum. This may be enough to trigger a rally into the double-top at 11058.00 to 11058.50. The latter is a potential trigger point for an acceleration to the upside.

On the downside, 10393.50 to 10236.75 is holding the rally together. Buyers came in strong to defend this zone when they produced a bottom at 10301.00.

The daily chart indicates there is plenty of room to the downside under the Fibonacci level at 10236.75. Taking out this level with conviction could trigger an acceleration to the downside with the next major target the June 29 main bottom at 9728.75.

For a look at all of today’s economic events, check out our economic calendar.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Major Support 25938, Resistance 26608

September E-mini Dow Jones Industrial Average futures closed higher on Friday, diverging from the cash market Dow, which closed lower for the session. The blue chip average started higher, boosted by a surge in Apple after the tech giant reported stunning quarterly earnings the night before. However, the Dow couldn’t hold on to those gains shortly after the opening as concerns about the economic damage from the COVID-19 pandemic encouraged investors to book profits.

On Friday, September E-mini Dow Jones Industrial Average futures settled at 26378, up 160 or +0.61%.

Investors betting on more U.S. government stimulus were also disappointed as the Senate adjourned for the weekend after letting the extra $600-per-week federal jobless benefit expire.

Other Dow components were also a drag on the blue chip average. Chevron Corp reported an $8.3 billion loss on asset write-downs and ExxonMobil Corp recorded a second consecutive quarterly loss. Caterpillar reversed premarket gains and fell 3.2% after the heavy equipment maker signaled more pain from an uncertain economic outlook.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 25881 will signal a resumption of the downtrend. The main trend will change to up on a move through the last main top at 27057 and 27063.

The minor trend is also down. A trade through 26599 will change the minor trend to up. This will also shift momentum to the upside.

The minor range is 27057 to 25881. Its retracement zone at 26469 to 26608 is resistance. This zone is controlling the near-term direction of the Dow.

The main range is 27466 to 24409. Its retracement zone at 25938 to 26298 is major support and a possible trigger point for an acceleration to the downside.

Short-Term Outlook

Last week’s price action said it all. Simply stated, in order to get the September E-mini Dow Jones Industrial Average rolling to the upside again, the 50% level at 25938 has to hold as support, and the buying has to be strong enough to overcome the minor Fibonacci level at 26608.

Since the main trend is down, sellers are likely to defend 26469 to 26608. If buyers can overtake 26608, however, we could see an acceleration to the upside with the next targets 27057 to 27063.

If sellers can stop the rally then traders are going to try to work on the downside. This could mean a test of 25938 to 25881. There’s even another minor bottom at 25874. This price is a potential trigger point for an acceleration to the downside with 25293 and 25053 the next potential downside targets.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: A Week in Review – 01/08/20

The Majors

It was another bearish week for the European majors in the week ending 31st July. The DAX30 slid by 4.09% to lead the way down. It wasn’t much better for the CAC40 and EuroStoxx600, which saw losses of 3.49% and 2.98% respectively.

4 days in the red, including a heavy sell-off on Thursday, did the damage as economic data from Germany and the U.S weighed.

A continued rise in COVID-19 cases and a mixed bag on the corporate earnings front added to the market angst in the week.

The Stats

It was a busy week on the Eurozone economic calendar.

In a quiet first half of the week, however, stats were limited to Germany’s IFO Business Climate figures for July. Continued improvement in business sentiment delivered the only positive day for the DAX30 on Monday.

The markets then had to wait until Thursday for 2nd quarter GDP and July unemployment figures from Germany.

Germany’s economy contracted by 10.1% in the 2nd quarter, following a 2% contraction in the 1st quarter. Economists had forecast a 9% contraction. This was the largest decline since calculations began 50 years ago.

Year-on-year, the economy contracted by 11.7%, following a 1.8% contraction in the 1st quarter.

German Unemployment figures for July failed to provide support on the day, in spite of better than expected numbers. The unemployment rate held steady at 6.4%, with the number of unemployed falling by 18k.

On Friday, the French economy contracted by 13.8% in the 2nd quarter, with the Eurozone’s economy contracting by 12.1%.

June retail sales figures failed to provide support amidst the dire numbers, in spite of a further jump in sales. In France, consumer spending increased by 9%, following a 37.4% surge in May. German retail sales rose by 5.9%, following a 12.7% bounce in May.

Prelim inflation figures for July had a muted impact as the markets considered the economic woes. With a 2nd wave hitting the U.S and parts of the EU and Asia, the v-shaped recovery looks even less likely.

From the U.S

Stats were also skewed to the negative. Consumer confidence waned in July, with the CB Consumer Confidence Index hitting reverse.

Later in the week, initial jobless claims saw a 2nd consecutive weekly increase, with the U.S economy contracting by a whopping 32.9% in the 2nd quarter.

Things were not much better at the end of the week, with consumer sentiment revised down for July and inflationary pressures easing.

There were some pockets of positive, however. Durable goods and core durable goods orders continued to rise in June. Personal spending was also in recovery mode in June, though the 2nd wave pandemic could weigh on spending in July.

The Market Movers

From the DAX, it was a particularly bearish week for the auto sector. Volkswagen and Continental slid by 12.02% and 9.77% respectively to lead the way down. Things were not much better for BMW and Daimler, which saw losses of 8.88% and 6.33% respectively.

It was another bearish week for the banking sector. Commerzbank slid by 5.15%, with Deutsche Bank tumbling by 8.12%.

From the CAC, it was also a bearish week for the banks. Soc Gen tumbled by 11.64% to lead the way down. BNP Paribas and Credit Agricole weren’t far behind with losses of 8.13% and 8.75% respectively.

It was a particularly bearish week for the French auto sector, which reversed gains from the previous week. While Peugeot slid by 8.09%, the markets punished Renault, which slumped by 20.52% in the week.

Air France-KLM slid by 12.40%, while Airbus saw a more modest 3% loss in the week.

Earnings contributed to the moves in the week.

Renault reported a record net loss for the 1st half of the year. Volkswagen slashed its dividend off the back of an operating profit loss.

BNP Paribas fared better, with higher trading volumes providing support. The bank reported a net income loss for the 2nd quarter, however.

On the VIX Index

It was back into the red for the VIX, which saw its 6th week in the red out of 7. Reversing a 0.62% gain from the previous week, the VIX fell by 5.34% to 24.46 in the week ending 31st July.

The S&P500 and the NASDAQ ended the week up by 1.73% and by 3.69% respectively, while the Dow fell by 0.16%.

While economic data from the U.S was particularly dire, tech stocks delivered impressive quarterly earnings in the week. Mid-week, the FED had also delivered much-needed support, assuring the markets of continued support.

The Week Ahead

It’s another busy week on the Eurozone economic calendar.

The lion’s share of the stats is due out in the 1st half of the week. July private sector PMIs for Italy and Spain and finalized PMIs for France, Germany, and the Eurozone are in focus.

With Spain getting hit by a 2nd wave of the pandemic, there will be plenty of interest in the numbers. Ultimately, however, expect the Eurozone’s Service and Composite to garner the greatest attention.

In the 2nd half of the week, Germany is back in focus. June factory orders, industrial production, and trade data are due out.

Following last week’s GDP numbers, the stats will need to be impressive to ease the pain…

From the U.S

It is also a particularly busy week ahead.

Key stats include ISM private sector PMIs for July, the weekly jobless claims, and nonfarm payrolls.

From Elsewhere

Private sector PMIs and trade data from China will also influence in the week.

Away from the economic calendar, however, COVID-19 news and progress towards the U.S stimulus package will also influence. As always, there is also the simmering tension between the U.S and China to monitor.

S&P 500 Weekly Price Forecast – Continue to Grind Through Earnings Season

The S&P 500 has rallied a bit during the week but gave back some of the gains as we continue to see noise right around the 3280 level. That being said, we are in the midst of earnings season so it could be a major problem. Nonetheless, this major problem is probably short-term at best and I think that we will more than likely see plenty of buyers on any type of pullback. Earnings season causes a lot of noise, but at the end of the day the only thing that truly matters is that the Federal Reserve is still pumping the markets full of liquidity.

S&P 500 Video 03.08.20

The markets continue to see a lot of noise going forward, but I think given enough time it is likely that we will see buyers at lower levels, closer to the 3100 level. On the other hand, if we break above the 3300 level, it is likely that we will continue to go towards the gap above, perhaps even the 3400 level above which is a large, round, psychologically significant figure. That was the all-time high, so if we blow through there then we will of course continue to go much higher but I think we may be taking a little bit of a breather as we listen to the earnings season reports, perhaps giving people a bit of a pause at this point as to putting more money to work. With this, I have no interest whatsoever in trying to short this market, regardless of what is going on in the “real world.”

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Price Forecast – Stock Markets Continue Channeling Higher

The S&P 500 has pulled back a bit during the trading session on Friday, reaching down towards the 3220 handle. However, there are buyers down there waiting to get involved and therefore think we continue to grind higher. 20 day EMA underneath is massive support, and at this point in time it is likely that the market will continue to find buyers in that general vicinity, perhaps even extended down to the 50 day EMA after that. That being said, the market is likely to continue finding value hunters coming into this market, so I think that eventually liquidity wins, and we go much higher.

S&P 500 Video 03.08.20

The 3300 level above is a target, and once we break above there is likely we will try to fill that small gap that is closer to the 3050 handle. Above there, then the market is likely to go looking towards the 3400 level which was the all-time high. I do think we eventually get there, and perhaps even further to the upside. Regardless, I have no interest in shorting this market as long as the Federal Reserve continues to be ultra-loose with its monetary policy and continue to flood the market with greenbacks. Because of this, the market is going to continue to offer opportunities every time we dip, so be cautious about trying to short this market, as it is in an obvious uptrend and there is no reason to try to fight overall.

For a look at all of today’s economic events, check out our economic calendar.

The S&P 500 Upleg Is Getting Underway

The battle to break above the early June highs is on, and the bulls are likely to win it more lastingly this time around, thanks to tech earnings. The runup to their aftermarket announcement has been promising, and more gains were added once the numbers came in. Can I turn from merely cautiously optimistic to broadly optimistic now?

That’s the question I’ll answer in today’s analysis by examining especially the credit markets and sectoral performance.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

Yesterday’s intraday downswing was soundly rejected, and prices closed again near to the early June highs. The chop around the horizontal blue line just got a more bullish flavor. The anticipation of positive tech earnings turned into reality, and has the potential to carry the S&P 500 rally further.

Yes, that’s true just as my yesterday’s comment on the frightening advance Q2 GDP and poor unemployment data, when I wrote that these concerns:

(…) are likely to be brushed aside during the regular session’s trading – I see the focus as being rather on the upcoming stimulus details and tech earnings.

So far so good – let’s check the credit market performance next.

The Credit Markets’ Point of View

A very high volume day in high yield corporate bonds (HYG ETF) yesterday, with prices closing near their daily highs. That’s a show of strength, and a supporting rationale to drive stock prices higher next.

Investment grade corporate bonds (LQD ETF) though didn’t take part in yesterday’s HYG hooray (please see this and many more charts at my home site). At the same time though, they’re not flashing signs that would make me doubt the HYG move higher.

The overlaid S&P 500 closing prices (black line) compared with the HYG:SHY ratio show how relatively timid yesterday’s race to erase opening losses in stocks was. After the late-July soft patch in the 500-strong index, stocks are getting an increasingly stronger HYG:SHY tailwind these days. Is the resolution to the early July chop being repeated with a fledgling upswing? I think so.

S&P 500 Sectors in Focus

The renewed upleg in technology (XLK ETF) bodes well for the S&P 500, and even more so given that estimates were broadly beaten.

Healthcare (XLV ETF) recovered from the initial selling pressure, but its consolidation may have a little further to go regardless of the volume contraction that points to a bigger upcoming move. The drying selling points to an upside resolution more than anything else.

Financials (XLF ETF) also recovered from their intraday downswing, closing about unchanged. The volume though points at accumulation, which is likely to be followed by a move higher.

Consumer discretionaries (XLY ETF) keep trading in a tight range, and their intraday reversal on higher volume is similarly likely to result in another attempt to break above yesterday’s close.

Industrials (XLI ETF) didn’t dazzle yesterday, but the consolidation around their 200-day moving average is still likely to resolve with another upside move.

The first of the defensive sectors, utilities (XLU ETF) are still basing around their 200-day moving average, also with a bullish bias. The rotation into this value play is very much on.

The second one of the defensives, consumer staples (XLP ETF) keep the fire they’ve been on since late June, alive and well. While a consolidation of recent strong gains wouldn’t be unexpected, the underlying bullish trend implications are undeniable.

On one hand, there’s the theme of inflation in the pipeline, and steeply plunging greenback. But the reality of yesterday’s advance Q2 GDP took some cream off the ETF’s prices. As the dip was heavily bought, upcoming move higher appears inevitable.

Summary

Summing up, yesterday’s S&P 500 rebound off the early session’s lows got plenty of follow through next, and is likely to carry over into today’s session too. Tech earnings surprised on the upside, and so did the semiconductors (hello AMD). The rotation into formerly lagging sectors is helped by the tech regaining breath. Smallcaps performed in line with the S&P 500 yesterday, and emerging markets again took the baton. While the S&P 500 daily market breadth looks concerning (the advance-decline line moved to bearish territory) and so does the $VIX upper knot to a degree, the S&P 500 upswing is more than likely to run on, proving both factors as of fleeting and inconsequential nature.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

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All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

U.S. Stocks Set To Open Higher As Big Tech Reports Strong Earnings

Big Tech Beats Earnings Estimates

Amazon, Apple, Alphabet and Facebook have recently provided their second quarter reports.

Amazon revenues were up 40% year-over-year while its earnings of $10.30 per share beat analyst estimates by $8.80.

Apple’s revenue and earnings were also higher than estimates. The company stated that the release of iPhone 12 will be postponed by several weeks and also announced a four-for-one stock split.

Alphabet’s earnings were less spectacular but the company comfortably beat estimates with revenue of $38.29 billion and earnings of $10.13 per share.

Facebook’s revenue was up almost 11% year-over-year despite the challenges brought by coronavirus pandemic while the company’s earnings of $1.80 per share easily beat analyst expectations.

Not surprisingly, all these stocks are gaining ground during the premarket trading session. The Big Tech was the main driver of the market’s upside move from the bottom reached in mid-March, so S&P 500 futures are also up in premarket trading.

Coronavirus Aid Package Negotiations Have Yielded No Deal Yet

While traders cheer the great results of big tech companies, their attention may later shift to coronavirus aid package negotiations.

At this point, there are no signs of progress. The $600 weekly unemployment benefits are about to expire, and failure to maintain the program in some form may put heavy pressure on consumer activity.

While there is always a chance of a last-minute deal, worries about the stimulus package may put some pressure on stocks later in the trading session.

Personal Income Fell By 1.1% In June

The U.S. has just provided Personal Income and Personal Spending reports for June.

Personal Income declined by 1.1% month-over-month, while analysts expected a decline of 0.5%. The pace of the decline has decreased compared to May when Personal Income fell by 0.5%.

Meanwhile, Personal Spending increased by 5.6% month-over-month, mostly in line with the analyst consensus which called for an increase of 5.5%.

While Personal Income is under pressure due to the negative impact of the coronavirus pandemic, Personal Spending is supported by various government aid programs.

That’s why failure to reach a deal on the new coronavirus aid package may have a significant negative impact on the market.

For a look at all of today’s economic events, check out our economic calendar.

Asia-Pacific Shares Close Mostly Lower, Fading Wall Street

The major Asia-Pacific stock indexes finished mixed but mostly lower on Friday, led by a steep decline in Japan. The sell-off was primarily fueled by a record contraction in U.S. gross domestic product in the second quarter. This was followed by another rise in weekly U.S. initial claims, the inability of Congress to pass another stimulus bill and mixed earnings results. Meanwhile, China’s factory activity beat expectations.

On Friday, Japan’s Nikkei 225 Index settled at 21710.00, down 629.23 or -2.82%. Hong Kong’s Hang Seng Index finished at 24595.35, down 115.24 or -0.47% and South Korea’s KOSPI Index closed at 2249.37, down 17.64 or -0.78%.

China’s Shanghai Index settled at 3310.01, up 23.18 or +0.71% and Australia’s S&P/ASX 200 Index finished at 5927.80, down 123.30 or -2.04%.

US GDP Plunges During Second Quarter

Data released Thursday by the U.S. government showed GDP dropping 32.9% in the second quarter – the worst drop ever, with the closest previously coming in mid-1921. Still, the data print was not as bad as feared, with economists polled by Dow Jones have expected a 34.7% decline.

US Weekly Jobless Claims Rise

The number of Americans who filed new claims for unemployment benefits last week totaled 1.434 million, the Labor Department reported Thursday, roughly in line with expectations, as the coronavirus pandemic continues to ravage the U.S. economy.

Continuing claims – which are composed of those receiving unemployment benefits for at least two straight weeks – rose by 867,000 to 17.018 million for the week-ending July 18.

Congress Fails to Agree on Next Coronavirus Stimuli Deal

Republicans and Democrats have made little progress toward a coronavirus relief deal as economic data show an economy still reeling from the coronavirus pandemic. Congressional leaders are blaming one another for the expiration as coronavirus cases continue to increase around the country. Meanwhile, an enhanced federal unemployment benefit is expiring even as initial jobless claims increased for two consecutive weeks.

China’s Factory Activity Beats Expectations in July

China’s factory activity expanded in July for the fifth month in a row and at a faster pace, beating analyst expectations despite disruptions from floods and a resurgence in coronavirus cases around the world.

The official manufacturing Purchasing Manager’s Index (PMI) rose to 51.1 in July from June’s 50.9, official data showed on Friday, marking the highest reading since March. Analysts had expected it to slow to 50.7.

For a look at all of today’s economic events, check out our economic calendar.