Saturday, July 23, 2016

Trading Outlook for the Week of July 25-29

We close out the month of July in the coming week, following four solid weeks of strong performance.  The week ahead sees the July FOMC meeting, the GDP report, and another week of key earnings reports.

We're starting to see a bit of a pause in the upward movement across all capitalizations, and from an Elliott Wave perspective, all but the Nasdaq Composite appear to be in a fourth-wave consolidation.  The strongest plays for the week appear to be in either the Nasdaq or in the Large Cap stocks.  Both Mid and Small Cap stocks remained in a horizontal consolidation pattern, so we'll avoid those until their trends resume.

The three strongest sectors closing out the week are Technology, Utilities, and Health Care, so for long trades we'll be looking primarily in those sectors.  That the Utilities sector surged on Thursday and Friday is an area of concern since that indicates a renewed flight to safety.  The 10-Year Treasury Yield declined 1.87% this week after a large spike up last week.  We'll keep an eye on this throughout the week as well, since a decline in yield will further support the concept of a flight to safety.

Here's a summary of the week ahead.

Trading Bias 

Large Caps - Long
Mid Caps - No Trades
Small Caps - No Trades
Nasdaq - Long


Showing strength
XLK - Technology

XLU - Utilities
XLV - Health Care

Showing weakness
XLB - Materials
XLE - Energy
XLI -  Industrials
XLP - Consumer Staples

XLF - FinancialsXLY - Consumer Discretionary

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

Monday, 7/25/16
  • 10:30 - Dallas Fed Manufacturing Survey
Tuesday, 7/26/16
  • 09:00 - S&P Case-Shiller HPI
  • 10:00 - New Home Sales
  • 10:00 - Consumer Confidence
Wednesday, 7/27/16
  • 08:30 - Durable Goods Orders
  • 10:00 - Pending Home Sales Index
  • 10:30 - EIA Petroleum Status Report
  • 14:00 - FOMC Meeting Announcement
Thursday, 7/28/16
  • 08:30 - International Trade in Goods
  • 08:30 - Jobless Claims
Friday, 7/29/16
  • 08:30 - GDP
  • 08:30 - Employment Cost Index
  • 09:45 - Chicago PMI
  • 10:00 - Consumer Sentiment
Earnings Reports Watched for Sector or Market Significance

Tuesday, 7/26/16
  • Before Market Open - Caterpillar (NYSE:CAT)
  • Before Market Open - 3M (NYSE:MMM)
  • Before Market Open - United Technologies (NYSE:UTX)
Wednesday, 7/27/16
  •  Before Market Open - Boeing (NYSE:BA)
Thursday, 7/28/16
  •  Before Market Open - Ford (NYSE:F)
Friday, 7/29/16
  • Before Market Open - UPS (NYSE:UPS)

Our long positions this week will be limited to large caps and Nasdaq stocks, primarily in Technology, Utilities, and Health Care.  We'll keep our stops very close for several reasons:
  • Both UNP and SLB provided strong evidence of potential problems in several key industries.  This may take the wind out of the strong bullish sails we've experienced for four weeks.
  • Strength in the Utilities sector and a slight decline in the 10-year yield are showing signs of a renewed flight to safety.
  • There are major companies reporting earnings throughout the week.  This will add a measure of unpredictability to the markets.
  • FOMC reports on Wednesday.  While we don't anticipate any major announcements, just the tone and language of the announcement can generate unforeseen shifts in market behavior.
  • Mid-caps and Small-caps are experiencing consolidation, and both Large-caps and Nasdaq are showing signs that they, too, will enter a similar phase.
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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