Challenging Clues

A new record high in Russell and indecisiveness in the DIA and SPY certainly makes for challenging clues as to what happens next.  On the positive side, all the indexes are trending, and the bulls have shown tremendous strength with the hope of wrapping up trade negotiations with Mexico and Canada.  On the negative side, the threat of 200 billion in new tariffs against China looms heavy, and the bears have started looking for weakness with some minor attacks.

Couple that with the possibility of light volume due to extended labor day vacations and the phrase, “anything is possible,” seems to be an understatement.  The futures are pointing to a lower open, but I wouldn’t expect the bulls to give up easily.  Remember a pullback to test support within a trending market is a normal and healthy thing as long as support levels hold.

On the Calendar

Our short week begins with three potential market-moving reports on the Economic Calendar.  First, at 9:45 AM the PMI Manufacturing Index according to consensus will see a slightly decline to 54.5 in August vs. 55.5 in July.  At 10:00 AM, the ISM Mfg. Index is also expected to decline slightly to 57.6 vs. 58.1 giving some relief to backlogs and delivery delays.  Also at 10:00 AM, the volatile Construction Spending is expected to increase in July by 0.4% while continuing to experience labor shortages and higher material costs.  Other than that we have 3-Bond Auctions between 11:30 AM and 1:00 PM to round out the day.

On the Earnings Calendar, we have just over 30 companies reporting results today.  Before the bell, CONN, CASY and SHLD are among those reporting.    After the close COUP, WDAY, and RH are among those stepping up to report.

Action Plan

Friday’s choppy price action shook off the morning selling with a late day rally producing a new record high close for the Russell.  The QQQ stop just short of making a new record while the DIA and SPY left behind candles of indecision.  Asian market was mostly higher overnight although the Chinese economy continues to produce worrisome data points.  Currently, European markets are decidedly lower this morning as the threat of 200 billion in new US tariffs looms over China.

The Bulls have been solidly in control, but this morning the Futures markets are indicating a gap down open.  After such a strong run a pullback or consolidation would be healthy as long as the bulls defend support levels.  However, the bulls have been so tenacious that a rally back would not be out of the question.  Remember that many traders may have extended their holiday into this week so choppy price action and light volumes are possible.

Trade Wisely,

Doug