Q2 Earnings Not Good Enough. Major Economic Releases Start Wed. Watch For Signs of A Top
Last week marked the climax of earnings season. The releases were fast and furious and the macro reaction was muted. Stocks were not able to rally on the news and resistance is building.
End of month/beginning of the month fund buying will support the market for a few more days. This is a busy week for economic releases and they will dominate the scene.
ISM manufacturing/services, GDP, official PMI’s, ADP, FOMC and the Unemployment Report will be released. US activity has been hovering above the zero line. The Fed will taper this fall and economic growth is flat. This combination is not good for the market and it will spark a round of profit taking. Bullish speculators will get flushed out and the SPY will retrace back to the middle of the trading range.
Corporations are not guiding higher. They cite uncertainty in Europe and China. Revenues for Q2 will increase 1.1% and profits are expected to fall .6% year-over-year. These are the worst comps we’ve seen in years.
Asset Managers will not chase at an all-time high. They will wait for new information and they will look for signs of economic growth before they step up to the plate.
Earnings have been decent, but good news is priced in. Economic releases will be flat and investors will reduce risk. The FOMC will remain accommodative, but they will taper.
The rally during the last month has come on very light volume. Wait for signs of a top.
I am trading calls and puts on horizontal breakouts/breakdowns. This gives me a balanced approach and it hedges my overnight risk. The market is not going anywhere, but there is plenty rotation within.
If the SPY starts to selloff in any given day and the momentum builds, I will buy puts. I will add to the position if the SPY closes below $167. I will also shift entirely to a bearish strategy when this happens. I believe we still have a couple of decent days where fund buying will help to support the market.
The big economic releases start on Wednesday. Get ready for a busy week.