Sunday, July 31, 2016

Trading Outlook for the Week of August 1-5

The last week of trading in July saw continued strength in the Technology sector, and that carried through to the Nasdaq as a whole.  There's some signs of life coming back into the mid-cap stocks, however across the board the S&P large cap, mid cap, and small cap indexes continue to be flat.  A bit of demand came into the markets on Thursday and Friday, following the dovish Fed announcement that suggests interest rates will remain at their current level well into 2017.

We are still maintaining a long bias into the week ahead, however with the extremely tight range being experienced in all market capitalizations for the last two weeks, be aware that a breakout in either direction is possible.  Only the higher volume on the last two up-days suggests that the breakout could be to the upside.  In the meantime, we'll be keeping our stops close.

Here's a summary of the week ahead.

Trading Bias 

Large Caps - Long
Mid Caps - Long
Small Caps - Long
Nasdaq - Long


Showing strength
XLK - Technology
XLV - Health Care

Showing weakness
XLE - Energy
XLI -  Industrials
XLP - Consumer Staples
XLU - Utilities

XLF - Financials
XLY - Consumer Discretionary
XLB - Materials

Economic Reports of Significance (all times are EDT - GMT-4)

Monday, 8/1/16

  • 09:45 - PMI Manufacturing Index
  • 10:00 - ISM Manufacturing Index
  • 10:00 - Construction Spending
Tuesday, 8/2/16
  • 08:30 - Personal Income & Outlays
Wednesday, 8/3/16
  • 08:15 - ADP Employment Report
  • 10:00 - ISM Non-Manufacturing Index
  • 10:30 - EIA Petroleum Status Report
Thursday, 8/4/16
  • 08:30 - Jobless Claims
  • 10:00 - Factory Orders
Friday, 8/5/16
  • 08:30 - Employment Situation
  • 08:30 - International Trade
Earnings Reports Watched for Sector or Market Significance

Tuesday, 8/2/16
  • Before Market Open - Proctor & Gambel (NYSE:PG)
Wednesday, 8/3/16
  •  Before Market Open - Avnet (NYSE:AVT)

Our bias remains long, and we will pay closer attention to Nasdaq stocks and Health Care stocks.  We'll keep our stops very close for several reasons:
  • All three market capitalizations continue to show an extremely tight trading range.  Until we see the direction of the breakout, we'll need to remain cautious for a move to the downside.
  • The 10-year yield is still trending down, indicating a continued flight to safety.  Weakness in the Utilities sector suggests this flight may be ending however we'd like to see confirmation in the treasury yield before reaching that conclusion.
  • This is Employment Situation week, and that adds a measure of uncertainty to Friday's behavior. 
  • The Bank of England has their announcement on August 4th, and there will be uncertainty leading into Thursday based on the view they will take regarding Brexit risks.
As always, trade the market you see, not the market you want.  Remain nimble, stick to your trading plan, and always know your exit strategy before entering the trade.

Happy Trading.

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