Views From The Hill

Market Direction Notes: SP-500 Consolidation and Crude Oil Correction

Equities

SP-500: The weekly and monthly bullish channels for the benchmark index remain intact, but momentum is waning as the short-term uptrend was violated by bears on July-8-2014.  However, the lack of a follow-through capitulation portrays this secular bull market’s resiliency (hat tips to Alcoa (AA) positive earnings report on Wednesday and Wells Fargo’s (WFC) positive earnings surprise announcement on Friday) as the last three trading days of this week have been all about consolidation.

 

sp-500-daily-july-11-2014

Expanding Economy with Technically Overbought Market: The market condition is extremely overbought and susceptible to a pullback. The monthly chart reads extremely overextended while the weekly suggest at minimum an overdue test of the lower channel support areas. In this context, it is possible for such a bearish move to occur without breaking or damaging the uptrend channels. Support at these lower channels could very well provide entry opportunities for fresh money and vultures alike as Housing, PMI Manufacturing and Employment numbers from two weeks ago week confirmed an economy that is still expanding. This past week’s economic calendar was very light in terms of major news outside of a surprisingly positive Initial Jobless Claims report (304k actual vs. consensus @ 315k and previous month @ 315k)  and the release of FOMC minutes from the June 17-18 meeting whereby the Fed has indicated that it will complete its tapering by the end of October as scheduled, while mentioning no hints of any rate increases for now.

 

sp-500-weekly-july-11-2014

sp-500-monthly-july-11-2014

Earnings Takes Over As Market Driver: So does this mean that the bulls will bring stock market investors a “higher love”? While it is premature to make such a call, the changing of the guard has occurred as market technicians cede control of the driver’s seat to fundamentals, which means that earnings season is now in full control of the market direction. Some of next week’s more notable releases are as follows:

 

Date Time Company Industry Est. EPS
July-14 Pre-Market Citigroup (C) Financial $1.08
July-15 After-Market CSX Corp (CSX) Transportation $0.52
July-15 Pre-Market Goldman Sachs (GS) Financials $3.07
July-15 Pre-Market JB Hunt Tran (JBHT) Transportation $0.79
July-15 After-Market Intel Corp (INTC) Technology $0.52
July-15 Pre-Market Johnson & Johnson (JNJ) Health Care $1.54
July-15 Pre-Market JPMorgan Chase (JPM) Financials $1.30
July-15 After-Market Yahoo Inc (YHOO) Internet $0.30
July-16 Pre-Market Abbott Labs (ABT) Health Care $0.51
July-16 Pre-Market Blackrock (BLK) Financials $4.47
July-16 After-Market Cohen & Strs (CNS) Real Estate $0.44
July-16 After-Market Ebay Inc (EBAY) Internet $0.58
July-16 After-Market Sandisk Corp (SNDK) Technology $1.28
July-16 Pre-Market Schwab (SCHW) Financials $0.22
July-16 Pre-Market St. Jude Medical Health Care $1.00
 July-17 After-Market Adv Micro Devices (AMD)  Technology $0.02
July-17 Pre-Market Baker Hughes (BHI) Energy $0.89
July-17 Pre-Market Baxter Int’l (BAX) Health Care $1.21
July-17 Pre-Market Blackstone Grp (BX) Financials $0.65
 July-17 After-Market Google (GOOG) Internet $5.16
July-17 After-Market Int’l Business Machines (IBM) Technology $4.31
July-17 Pre-Market Morgan Stanley (MS) Financials $0.55
 July-17 Pre-Market Philip Morris (PM) Consumer $1.24
July-17 Pre-Market SAP AG ADR (SAP) Technology $0.88
July-17 After-Market Schlumberger (SLB) Energy $1.36
July-17 After-Market Seagate Tech (STX) Technology $1.09
July-17 After-Market Stryker Corp (SYK) Health Care $1.10
July-17 Pre-Market United Health Grp (UNH) Health Care $1.25
July-18 Pre-Market Bank of NY Mellon (BK) Financials $0.56
July-18 Pre-Market Ericsson ADR (ERIC) Technology $0.14
July-18 Pre-Market General Electric (GE) Industrials $0.39
July-18 Pre-Market Honeywell Int’l (HON) Industrials $1.35
July-18 Pre-Market Johnson Controls (JCI) Consumer $0.82
July-18 Pre-Market Kansas City Southern (KSU) Transportation $1.17

 


 

Commodities

Crude Oil (/CL-Aug’14): The pivot point for Crude Oil occurred on Wednesday as it violated both its lower uptrend channel and 50-day moving average price. Triggering this move was news of Libyan Oil coming onto the market as its already 340k bbl/day Sharara field is ramping up production towards 2/3 of its capacity output. Combine this with the approaching end of a peak driving season and  rising U.S. domestic oil production (Texas and North Dakota now account for almost half of domestic output) and suddenly the geopolitical threats of supply disruptions in the Middle East or Ukraine/Russia evoke the question “Really?” amongst traders.

Currently Oil is undergoing a bearish Fibonacci retracement from its June-2014 high @ $107.68 to its January-2014 low @ $91.24. It has completed slightly more than 38.2% of this move and could very likely test Support 1 (S1) levels @ $99.45 to give us a 50% retracement. On caveat is that “Sir Earl” is extremely oversold on intraday time frames ranging from 4-hours all the way down to 5 minutes. Some sort of contrarian bounce could goose shorts into covering and having the price test resistance @ $101.40-$101.50 pivot point area or even return for a farewell kiss at the resistance levels of $103-$104 which mark the bottom channel of its recently deceased uptrend. In either case, these would be ideal entry levels for new short positions as I anticipate at least a full 61.8% Fib retracement to the 97.50 area over the next one to two weeks.

 

crude-oil-weekly_7-11-2014

 

 

 

 

 

 

 

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