Hot tech leads stealth upswing

Despite more market-rattling tariff threats, contentious geopolitical meetings, and a summer-siesta end to the trading week, the US equity market has managed to establish a few impressive milestones in recent days—just in time for Q2 earnings season, by the way. Among the highlights:

●The Nasdaq 100 (NDX) made consecutive all-time highs on Thursday and Friday, and closed the week up more than 15% on the year.

●The Russell 2000 (RUT) hit a new all-time intraday high on Tuesday.

●The S&P Midcap 400 (MID) made back-to-back record highs on Monday and Tuesday.

●The Dow Jones Industrial Average (DJIA) managed to push back above 25,000 for the first time in almost a month, and got back into the black for the year.

And then there’s the S&P 500 (SPX). Friday’s rally pushed the large-cap barometer above its mid-March peak of 2801.90—the highest of its three post-correction swing highs (February, March, and June)—leaving the index at its loftiest point since February 2 (chart below). Yes, the SPX again at the conspicuous resistance level that has turned back rallies three other times since March. But as the SPX embarks on another run for the roses, it is doing so having established its third higher swing high and swing low since April—what some traders might go so far as to call an “uptrend” (let’s not jinx anything, though).

S&P 500 (SPX), 12/28/18 – 7/13/18. S&P 500 (SPX) daily price chart. Support and resistance. Breakout. Fourth time the charm?

Source: OptionsHouse

It may be a chicken-or-egg scenario for the market: Will continued upside momentum make it a “good” earnings season, or will a good earnings season provide the fuel for continued upside momentum? Regardless, the S&P is poised to test the last technical hurdle in its path before a possible challenge to its January all-time high.

Another storyline, though, was the relative weakness in small-cap stocks, which, despite Tuesday’s new RUT high, flipped from leaders to laggards over the past two weeks. Here’s how the US indexes stacked up:

Index comparison table for week ending July 13, 2018. S&P 500, Nasdaq 100, Russell 2000, Dow Jones Industrial Average.

Source: OptionsHouse (data)

The week’s turnaround also reshuffled the sector deck a bit, with recent defensive leaders rotating to the back of the line and tech reclaiming pole position. The top-performing S&P 500 sectors were information technology (+2.3%), industrials (+2.2%), and consumer discretionary (+2.1%). The worst-performing sectors were telecom services (-1.6%), utilities (-1.2%), and real estate (-0.8%).

Airlines took a hit mid-week on the back of lowered guidance from American Airlines (AAL), which shed 8.08% on Wednesday to fall to its lowest level since last September. Delta Airlines (DAL) fell 1.5%, but followed up with a 1.8% gain on Thursday after releasing its Q2 earnings. Also on Thursday, Broadcom’s (AVGO) $18.9 billion acquisition of enterprise software company CA Inc. (CA) was cheered by shareholders of the latter and lambasted by its own: AVGO shares fell 14% while CA shares jumped nearly 19%.

In futures, crude oil got slammed last Wednesday amid the latest spike in trade-war fears, as well as news that Libya was re-opening several shuttered oil ports. August WTI crude oil futures (CLQ8) lost more than 4% on the day (falling to around $70/barrel) before stabilizing on Thursday and turning higher on Friday. Soybean futures (ZS) continued their descent to decade-long lows, while sugar futures (SB) dropped to their lowest level in nearly three years amid a global market glut.1

The week ahead: Econ calendar highlights include the month’s first housing numbers, along with Beige Book and Leading Indicators:

Monday: Retail Sales, Business Inventories

Tuesday: Industrial Production, Housing Market Index

Wednesday: Housing Starts, Beige Book

Thursday: Philadelphia Fed Business Outlook Survey, Leading Indicators

Earnings season is back! The week features lots of financial companies (traders will be watching to see if Friday’s mostly solid bank numbers were representative or a fluke), along with some high-profile tech names—and the first FAANG stock. The following list is just a sample; go to the E*TRADE market calendar (logon required) for an up-to-date schedule, along with a complete list of splits, dividends, IPOs, and other market events.

Monday: Bank of America (BAC), BlackRock (BLK), JB Hunt Trans (JBHT), Netflix (NFLX)

Tuesday: Comerica (CMA), First Horizon (FHN), Goldman Sachs (GS), Johnson & Johnson (JNJ), Prologis (PLD), UnitedHealth (UNH), United Continental (UAL)

Wednesday: Abbott Labs (ABT), Grainger (GWW), Morgan Stanley (MS), Textron (TXT). U.S. Bancorp (USB), Alcoa (AA), American Express (AXP), eBay (EBAY), IBM (IBM), Kinder Morgan (KMI)

Thursday: BNY Mellon (BK), Fifth Third (FITB), Philip Morris International (PM), Taiwan Semi (TSM), Travelers (TRV), Union Pacific (UNP), Cintas (CTAS), Microsoft (MSFT)

Friday: General Electric (GE), Gentex (GNTX), Honeywell (HON), Schlumberger (SLB)

Futures contracts expiring this week include:

●Monday: July cocoa (CCN8), July lean hogs (HEN8), July Euro FX (6EN8), July Mexican peso (6MN8), July Russian ruble (6RN8), July South African rand (6ZU8)

●Wednesday: July VIX (VXN8)

●Thursday: July coffee (KCN8)

Striking distance. The S&P’s push above its March 13 high on Friday may not qualify as a high-momentum breakout, but it brought the index to within 2.6% of its January 26 peak of 2872.87.


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1 The World Is Dealing With a Massive Sugar Glut. 7/19/18.