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Market Follow-Up Tuesday, July 11th


Breakdown of today's trading day

Analysis of economic data and market movements

Looking forward with three data-dense days

How Did the Markets do?

Markets are mostly flat today pre-critical data in the next few days; S&P down -0.1%, Dow flat, and Nasdaq up 0.3% to $6,193, slightly above it’s resistance (now support) of $6,190.

What Groups Performed Best/Worst?

Top performing sectors were energy and tech (only two sectors in positive territory), up +0.5% and +0.2%, respectively. The financial sector is today's worst performing sector – down -0.8%, with asset managers, insurance brokers, and banks leading the decline while the REIT industries were positive components in the sector.

You would have made money if you: longed UGAZ yesterday pre-close or at today’s open (+11.3%), longed AA or X (+2.5% & +2%), bought NUGT or silver USLV in early session trading (+1.6%, +3.6%), longed oil/energy OIL/OILU/UWT/ERX (+1.5%, +4.6%, +4.7%, +1.5%), semiconductor technology SOXL (+2.7%), or decided to invest in Emerging Markets EDC (+2.7%). Alternatively, you would have made money if you were to short (or lost money if you longed); financials FAZ/FINZ (+1.1%, +1.3%) and bitcoin investment trust (-2.3%).

Why? What Economic/Market Events Occurred?

NFIB Small Business Optimism Index: at 103.6 vs. 104.5 prior/expected. Optimism fell continuously from January highs with current headwind being Senate and healthcare reform. This suggests to me that it was mostly optimism and “animal spirits” that led the market higher in late 2016/early 2017. The least optimistic component was the earnings trends. Wholesale Trade rose 0.4% vs. -0.4% prior and 0.3% expected (could help Q2 GDP).

The markets opened flat/lower, resuming yesterday’s pre-close decline in the first 15 minutes of trading. (Probably because Nasdaq opened up lower with a small gap and continued to decline, as investors were hesitant facing resistance levels). At roughly 9:45 am EST markets recovered until 11:10 am when they quickly sold off amid Trump Jr. controversial email release regarding Kremlin’s offer to provide sensitive information on Clinton. The additional controversy’s impact on the stock market was ephemeral; stocks bottomed at 11:25, recovered by 2 pm, and notched higher throughout the remainder of the day. Reactions like this are ideal opportunities to make a quick profit off human error and I will capitalize on it next time by buying UVXY on the ride down and XIV on the ride up. UVXY would have made 10.25% in 20 minutes and XIV would have made 5% (implying I got in at bottom of dip and held till pre-close highs to sell).

In other news; McConnell said that the revision of healthcare plan is to come Thursday morning and delayed recess until 3 rd week of August. This is additional tension for stock markets to endure if they are to continue their rally; if doubts are concluded over the Trump healthcare reform promises and goals it could damage his credibility for tax reform – something that Wall Street/ market will not react to lightly. The August recess delay substantiates the supposition that Trump’s talk precedes his execution. This adds to the case of things that could go wrong, in addition to Fed unwinding, and the kick-off of Q2 earnings. In addition, today the US dollar fell and Treasury yields dipped lower (^TNX -0.38%).

What do I Predict will Happen Tomorrow/Next Few Days? Trade Ideas

The upcoming 3 trading days will contain highly important data and unfolding events. Two of three major indexes are at critical technical levels: S&P and Nasdaq. S&P is above it’s MA(50) but bumping into resistance at $2,427 ($2,425 currently) and Nasdaq is slightly above it’s resistance of $6,190 ($6,193 currently).

Oil was a major winner today – surging 3% as the API report suggests inventories (stockpiles) fell more than expected. This will without a doubt lead oil higher tomorrow during market open, but I think that investors will take profits and caution themselves before the EIA report at 10:30 am EST.

The most important developments to come tomorrow, I believe, are Inflation expectations, Yellen speech and testimony at 8:30 am and 10 am, respectively. Her speech at 8:30 am may shape pre-open futures so I’ll keep an eye on that. The Fed is yet to provide details about balance sheet reduction and I think they’re not likely to mention it prior to next FOMC meeting on Wednesday, July 26 th. However, the Fed Chairwomen, Yellen, could be presented with precisely these questions tomorrow as she meets with House of Representatives tomorrow. Her replies are likely to have significant affects on the dollar, gold, and yields as well as the market in general. I don’t think she will go in depth regarding the details of the balance sheet reduction so there may be a lot of panic/misinterpretation. In addition I think that she will emphasize the labor market conditions and the lack of wage pressures/inflation, this may give a boost to gold and DRV (REIT Bear).

Reports/News Coming Up

Wednesday 12 th: Great Britain Labour Market report, Eurozone Industrial Production, Petroleum Inventories, Atlanta Fed Business Inflation Expectations, Yellen Speaks (8:30 am EST) and testifies (10 am EST). * Important because gives insight into inflation and predicts Fed’s future action. May influence global yield rates, gold, dollar, REIT’s, commodities, financials, & indexes.

Thursday: China New Yuan Loans (* important because of China’s high debt to growth ratio, if debt keeps climbing and growth comes below what’s promised could help predict how risky it is and therefore short opportunities), Jobless Claims, PPI-FD, Bloomberg Consumer Comfort, Yellen speaks (10 am EST), and revision of the Healthcare Plan released Thursday morning.

Friday: CPI, Retail Sales, Industrial Production, Business Inventories, Consumer Sentiment, & Baker-Hughes Rig Count.

How Did my Stock Predictions go?

Yesterday I predicted that markets (specifically Nasdaq) would be flat today and that shorting Nasdaq if it opens up flat/mixed and continues decline (technical confirmation) is a good idea. This strategy wouldn’t have worked but it also wouldn’t have cost any significant losses, could have even been played out profitably. The point was to bet on Nasdaq not breaking resistance, which it did, for now at least. I also said that gold would dip and DUST/JDST would be reasonable plays. DUST didn’t have drastic moments at the moment of opening but it did push higher until about 10 – 11 am. Had I entered this immedetly at open (without waiting for technical confirmation, just relying on logic instead) I would have made about 3% (implying I got around open & got out before 11). I also correctly assumed that the lack of inflationary pressures will hinder Fed’s future rate hike probability, and this was reaffirmed by the Fed’s Brainard today.

What to watch/enter/exit?

What Yellen says at 8:30 am and how it affects futures (market, gold, dollar, yields)

How the Inflation expectations report and Yellen testimony affects trading at 10 am.

Oil (UWT/DWT, ERX/ERY, OILU) during open, pre-report, and post EIA data.