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Stocks: The Bias Is Down Until China or Greece Inspire Confidence

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Chart-595Risk-off sentiment was fanned overnight with another steep washout in China overnight. Fear and panic is clearly present even with fresh efforts from the PBOC to cushion the market largely ignored. In fact, suggestions that the Chinese stock markets are “freezing up” suggests that more declines are probably on the way as Chinese officials search for a way to shore up investor sentiment. However, the German DAX, FTSE and CAC 40 were all able to post some positive action and that surprisingly has not resulted in a positive early trade in US equity market measures. Fortunately for the bull camp the S&P has not forged a fresh downside breakout and perhaps the trade will find some solace from the FOMC meeting minutes later today. Unfortunately the markets will also see the unofficial start of the second-quarter US earnings season with results from Alcoa late this afternoon and the trade is generally expecting earnings growth to weaken in the coming cycle of reports.

S&P 500: The September S&P remains within this week’s sharply lower range but continues to carry a mostly negative chart vibe. An issue that might begin to weigh on prices this afternoon and later this week is views that S&P 500 earnings forecasts generally call for a contraction in profits in the range of 4%. Hopefully sentiment will be cushioned somewhat today if June comparable sales at Costco actually meet forecasts calling for a rise of 5 to 7%. We think the path of least resistance is down but that risk to fresh shorts is on the rise, especially if the trade detects a dovish tone from the Fed and or corporate news flow fails to match what has become definitively bearish sentiment. Initial support in the September S&P is seen at an old double bottom of 2047.50 and then not until 2043.00. To pick a bottom here is pegging a fundamental news shift and there doesn’t seem to be a reason to hold that view this morning.

Other US Indexes: The Mini Dow continues to reject sub-17,400 level on the charts but we doubt that large cap stocks will be able to discount slack earnings in the current environment. From past history one should not expect Greece or the EU to get serious on forging a solution until closer to the next self-imposed deadline of Sunday. Therefore aggressive traders should look to be a seller of rallies to 17,532 in the September Mini Dow, looking for a possible low today down at 17,410. However, the NASDAQ might have the most positive technical setup this morning as that index has managed to definitively reject a sharp range down washout overnight. Initial support is seen at 4412.50 and resistance is seen fairly close up at 4437.50.

TODAY’S MARKET IDEAS: Pushed into the market we suggest that traders sell rallies as the situation in China could be poised to overtake the focus on Greece as the primary driving force. While the Greeks have promised concrete proposals few expect a plan to surface today. With the S&P starting out in an aggressive slide we would suggest that traders view the 2047.50 level as a critical pivot point for the equity market complex today. Seeing US stocks track lower in the face of recovery action in European stocks highlights a prevailing negative attitude toward US equities and the pace of the US recovery.

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