Stock Market Early Morning Insights – July 19, 2016

The dominant group yesterday was the Semiconductor Devices. Japan’s SoftBank intends to acquire the British chip designer ARMS Holdings for $32 billion which lit a fire under the rest of the group.

Netflix reported earnings after the market closed and disclosed that subscriber growth has fallen off dramatically. Consequently, the stock dropped from a closing price of $98.81 all the way down to $81.84 before bouncing slightly. Is currently trading at $86.60, so it was a painful session for NFL X shareholders. As always, earnings announcements are a crap shoot, and this time the shorts won.

Earnings season is picking up with many well-known companies reporting today including Microsoft and Goldman Sachs. IBM reported after the bell yesterday and beat earnings estimates. It is trading up around $2.50 compared to yesterday’s close, and this is good news for IBM which it seemed to have lost its way in the past.

The NASDAQ 100 and the NASDAQ composite performed well yesterday as the composite broke above its flag, but volume was light. It would’ve been a much more convincing breakout on heavier volume. The S&P 400 mid-cap and the S&P 600 small-cap indexes continue to form flags. All three indexes look like they want to go higher. The S&P E-mini’s are also forming a flag on the daily chart.

Some analysts are taking the lack of progress last few days as a sign that the market is tiring and will soon roll over. Lack of volume to me suggests that there is little selling pressure, and the closes in the higher part of the daily ranges on the indexes suggest higher prices. Of course, this can all changes earnings season picks up, but for now I am leaning toward the bullish camp.

Today should give us an idea of how strong this market is. Stock index futures are down slightly an hour before the open, but if the early selling is absorbed by buyers and the indexes close higher, that will be a positive sign of higher prices ahead. Institutional funds have been mired in a no profit zone for the past year and a half until the recent breakout past resistance. I do not believe they want to give up the positive momentum easily.

In addition to semiconductor and Tech stocks in the NASDAQ 100 doing well, Airlines and Internet stocks continue to do well. Oil and gasoline were down yesterday on supply glut concerns and the positive momentum from five weeks ago has dissipated. Oil is now in a short term downtrend with support for crude light around the $44.75 level. If this is taken out, expect lower prices for oil and gasoline. We are in the summer driving season and gasoline is selling for less than two dollars per gallon in many locations.

The trends remain up, and I am bullish for now. Markets are dynamic and change daily, so I may have a different opinion by tomorrow.

STOCK MARKET EARLY MORNING INSIGHTS

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