Stocks Try to Mount a Rally
S&P – Index futures are higher in overnight trading, lifted by stronger-than-expected earnings from JP Morgan – 54 cents a share versus estimates of only 44 cents. Coupled with the surprising news from Wells Fargo, some traders believe that the worst may have passed for many of the nation's larger financial institutions. Merrill Lynch, Coca Cola, Microsoft, IBM and Google are also releasing earnings today, which will likely make trading very volatile – nothing new for the market these days. On the economic front, housing starts and permits and initial claims will be released at 8:30 ET, and the Philly Fed number will come out at 10:00 ET. Housing starts are expected to fall to 960,000 and permits are expected to show a more modest decrease to 965,000, while initial claims are forecast to increase to 380,000. As with corporate earnings, these figures have been revised down – or up in the case of initial claims - to the point where an upside (downside) surprise may be likely. The Philly Fed number is expected to show manufacturing in the region still contracting, with a consensus estimate of -15.0, which would be a very modest improvement over last month's -17.1 figure. The September e-mini S&P shows what appears to be a V-bottom reversal on the daily chart, which may be considered bullish. Traders will be looking for some sort of follow-through to confirm that pattern, preferably a close above the 18-day moving average, which is currently sitting at 1263.25. Failure to cross resistance at 1293.00 in the near term may result in the bears retaining control of the market. Support comes in at 1213.50, 1186.00 and 1169.75, while resistance can be found at 1257.25, 1273.75 and 1301.00.
Crude Oil – Crude is lower for the third consecutive trading session on demand worries. China, the world's second largest consumer of petroleum, has reported its slowest economic growth since 2005. Of the 23 industrialized nations, Canada has been the only nation to avoid bear market conditions in its stock indexes. Recent supply and demand data has shown that the skyrocketing cost of Oil has changed consumer and industrial behavior, which, in turn, has trimmed demand both in the U.S. and overseas. Yesterday's EIA report demonstrated that despite increases in imports of “black gold” and refinery utilization, both U.S. demand for gasoline and exports of diesel fuel continue to fall. Things have quieted on the geopolitical front as well, with fears of Nigerian rebel group MEND stepping up attacks on Western interests yet to be substantiated. More importantly, the U.S. has made the symbolic move of joining the EU in nuclear talks with Iran. The U.S. is also expected to show a diplomatic presence in Iran for the first time since 1980, which could be seen as something of a breakthrough. However, both of these situations have the possibility to change quickly, which would send prices back into bull mode. August Crude Oil confirmed a bearish double top formation yesterday, but prices finished well off of lows, causing traders to be cautious acting on the pattern. Thus far, prices have stayed above support at 132.00 and many market observers may be looking for a solid close below this level before ceding control to the bears. The August contract is also in danger of closing below the 50-day moving average for the first time since early February, which could be seen as a bearish indicator longer-term. Support comes in at 133.31, 132.03 and 130.96, while resistance can be found at 135.666, 136.73 and 138.01.
Rob Kurzatkowski, Commodity Analyst
