No news is good news

“No news is good news”, said the bulls as they rallied the markets yesterday leaving many calling it the “lull rally”.  Many sideline traders attempted to get in on the action further extending the positive momentum on the day.  The S&P500 closed at its highest level since February shrugging off the prior day’s worries placing it in contention to get a close above the round 2800, which is a level of strong resistance (see chart 4 in my chartbook). Though the Dow Jones Industrial Average posted a positive session and it is still neutral it has not managed to re-trend like the other major indices. The Dow will experience significant resistance on and around the 25000 level (see chart 6 in my chartbook).  The Russell 2000 continues to consolidate and will make a bid for its recent high and resistance level of 1708 in upcoming sessions (see chart 7 in my chartbook).  The NASDAQ 100 Index tells the inside story of yesterday’s rally as the tech and growth heavy index rallied to close on a new all-time high led by the usual-suspect FANGs (see chart 8 in my chartbook).  All of the charts are constructive except for the Dow Jones, which remains neutral.  The theme of growth continues to persist leaving analysts concerned that the upcoming earnings season, which is expected to be good, will not be properly factored into the market.  Speaking of earnings season, next week will feature the first major onslaught of earnings announcements, with many reporters having the ability to affect the larger cap indices.  That said, next week will surely deliver some excitement as the tug of war between trade war fears and actual corporate performance will play out.

metals index

In the commodity world, crude oil remains under pressure as it struggled to close just above its key support level around $70 the barrel.  Today’s Baker Hughes rig count will give oil traders something tangible to contemplate.  All industrial metals also remain under pressure from not only the ongoing dollar strength but also (I hate to say it) trade fears.  China’s slowing economy is also serving to put pressure on metals prices as they are primary consumers of the industrial commodities.   Check out the attached chart of the Bloomberg Industrial Metals Index to see the big picture.  On the bonds front, 10 year maturity bonds rallied slightly yesterday keeping yields within their recent tight range and they begin the day at 2.84% (see chart 10 in my chartbook).  The yield curve continued to flatten yesterday in response to the CPI number, with the 2 / 10 swap making new lows as evidenced by chart 18 in my chartbook.  While the CPI came in on expectations, the number does represent higher levels after several months of growth.  Incidentally, the CPI came in at +2.3% year over year, which when compared to the yield to maturity of 2 year notes of 2.58% shows a 28 basis point real yield. Many analysts believe that if inflation grows close to the yield of bonds,  funds will flow back from fixed income into equities. Don’t worry, the Fed will inevitably make sure that front end rates continue to rise faster than the inflation rate, but it is important to keep an eye on that differential because real yield IS important.  The President will meet Queen Elizabeth today causing at least a brief blackout window on @RealDonaldTrump twitter feed as it is well known that her Majesty does not permit cell phone use in her presence.  So today traders, bereft of external trade bluster, will begin to position and dig in for next week’s raft of earnings announcements and begin to contemplate the odds of a Croatia win over France in this weekend’s World Cup final.  No news may continue to be good news.  Have a great weekend and please call me if you have any questions.

daily chartbook 2018-07-13

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