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Stocks pause - Netflix disappoints

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Stocks opened slightly higher on Monday morning but faded and chopped during the rest of the trading day leaving the indices mostly negative, except for the Dow which gained 45-points led by the Financials. The 2800 level on the S&P has been a stubborn area for the index as it tries to move, and hold, above the March highs, but not so far.

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It was the beaten down Financials that led yesterday while the Nasdaq, small caps, and particularly Dow Transports all posted losses.

After the bell yesterday Netflix posted a disappointing earnings report and was down quite sharply in after hours trading. This should weigh on the Nasdaq today but I probably won't be contagious or be a indicator of consumer weakness. This was just Netflix overestimating their growth.

Now it could send some shock waves to the high flying techy FAANG stocks - with Netflix being the "N" in FAANG - since no one wants to be holding a high flyer that could disappoint like this, but again I don't think at this point it means too much for the outlook for the economy or earnings. But of course a mid-July sell-the-news reaction is generally expected during earnings season anyway, whether they are good or bad. At least that is what we've been preaching here lately. I'm sure you remember this chart.



Chart provided courtesy of www.sentimentrader.com


The meeting with Putin on Monday went.... (fill in the blank). It was controversial and certainly gave fodder to each side of the political spectrum, but it wasn't a market mover and that's what I was more concerned about.

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The S&P 500 / C-fund was bumping up against that 2800 level over and over again for a second straight day yesterday, but failed to close above it. There certainly wasn't a rush for the exits, but after hitting a 4 month high during a volatile market environment and heading into earnings seasons, perhaps there's just some reluctance to buy here. There's nothing overly bullish or bearish out there right now, so perhaps we will remain range bound, and since the S&P is at the top of its range....




The small caps (S-fund) lagged yesterday but the 20-day EMA held as support and we're also seeing a bull flag potentially formed since hitting that double top. The bulls wouldn't want to see anything much lower than yesterday's lows or the bull flag could be nullified.




The Financials led on the upside and while it is not out of the woods yet, breaking above the 200 and 50-day EMA's is a good start. You saw yesterday what it could do for the Dow, and of course there are plenty of bank stocks in the S&P 500 and the Russell 2000.




The Dow Transportation Index, on the other hand, could not move above the 50-day EMA again and it is back down testing the 200-day EMA. That's not what you want to see in a bull market.




The EAFE Index (I-fund) was flat on the day and remains below the 200-day EMA. Ditto what I said above about the Transports and the 200-day EMA.




The AGG (Bonds / F-fund) was down, pulling back from the double top, although it did reverse and close off the lows and near the highs of the day. The rising support line - currently crossing about 106.30 - is the area to watch.




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Thanks for reading. We'll see you back here tomorrow.

Tom Crowley


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