$SPY, $STUDY, What a difference a day made! Greece’s latest
proposal looked good enough for another bailout while the Chinese stock market
rallied for a second session. Although trading was slow Friday ahead of the
weekend, bulls can take a sigh of relief as all major indexes held on to their
morning gains throughout the session and finished near their intraday highs.
Although stocks are likely to continue to feel the ripple effect
from Greece and China, attention will now begin to turn to earnings in the
coming weeks as high profile firms, such as JPM, WFC, JNJ, and CSX, start to
report on Tuesday. Technically, the longer term trend is up, and we continue to
see positive divergences between the price levels of the major indexes and
their technical indicators during the selloff earlier this week. Once the
headline risks pass, odds should favor more bounces and lower volatility.
Over the past week the stock market continued to be held hostage
by headlines coming from Greece and China. Volatility increased and one day’s
collapse was met the next day with traders buying stocks across the board. In
the end the different indexes were little changed. Unfortunately, that’s likely
to continue as the problems in Greece and China aren’t about to be resolved
quickly. Throw in a Federal Reserve that’s anxious to raise interest rates in
September and you have a market that’s stuck in neutral.
Look for another volatile week and keep a watch on the past week’s
lows. The market is likely to trade off of short-term headlines and if this
week’s lows are broken selling could intensify. If it does, buyers should move
in at 17150 for the DJIA, 2010 for the S&P 500 and 4850 for the NASDAQ. If
investors get positive action from China’s market and a rally in Europe from a
Greek debt resolution the market is still oversold and could work its way
higher. The Alpha Intermediate Term Major Market model remains Bullish but the
Short term Traders model is extremely negative.
We sold off AVGO and IDTI on Stop Loss violations and elected not to
replace those positions in the face of the negative news out of China and
Greece. Should we see a bounce in the
coming week we may add a few positions from the Watch List but here again with
caution and tight Stop Limits. The Asset
Allocation recommendation remains at 37.5% Long and 63.5% Cash.
As earnings season gets into full swing in the coming week and
investors are going to struggle with the effects of a stronger U.S. dollar on
international revenues and earnings. According to Factset, earnings for the
S&P 500 are expected to decline year-over-year in the second quarter by
-4.4% and that’s going to keep a lid on the market until companies raise their
guidance for the third and fourth quarter.
What Factors Will S&P 500Companies Cite as Negative Impacts on Q2 Earnings and Sales?
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