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Quiet day in front of a big earnings week

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Flat, slow, and tired seems to describe the action on Monday. It was one of the most narrow trading ranges in the last year so perhaps the summer doldrums are kicking in, or it is the calm before the 2nd quarter earnings storm rolls in this week. There was a very late tick higher that moved the Dow up about 27-points, while the S&P moved from negative to positive in the last minute of trading and added a half of a point. Small caps were down as their back and forth continues, and the Transports were down slightly, taking a break from their big 2-day rally.

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The Transports may get a boost today after JB Hunt Trucking rallied after hours yesterday after posting earnings.

Over the next couple of days we'll get some of the larger financial companies reporting like Goldman Sachs, JP Morgan Chase, and Well Fargo, and on Wednesday eBay, IBM, and Netflix. Not big market movers yet, but dozens will start coming in this week.

I kind of spilled my guts out yesterday about how worried I am about stocks, but one thing about them is that, in the short-term, momentum can be stronger than any indicator or fundamental. The Fed's dovishness on rate cuts has folks excited about buying again after last year's rate hike scare, but can 1 to 4 25 basis point rate cuts outweigh what many are expecting to be a slow earnings period?

If earnings are not coming in at growth levels that warrant the price to earnings ratio that we are seeing - and as I mentioned yesterday P/E ratios are at historic levels when margin levels are considered - how can prices continue to appreciate? I suppose I gave the answer already... Momentum.

Other catalysts would also be able to keep a rally going despite high multiples, and that would be some kind of trade deal announced with China. But we're now more than 18 months since the initial tariff sell-off back in January 2018, so I think we may have to remain patient there.

There wasn't much movement in the indices yesterday so let's make this quick today.

The S&P 500 (C-fund) continues to rise within a slightly narrowing wedge formation. I'd expect that to break down in the near future but now that it is well above that old high near 2960, there's a better possibility that it could act as support on any pullback. That said, there is an open gap below that line and that is also a good lure.

The DWCPF (S-fund) tried again on Monday morning to push above that prior high, but it couldn't hold and actually closed with moderate losses. The rising wedge is getting squeezed and the pattern looks somewhat similar to the pattern we saw at May's high, just before it rolled over..

The I-fund was up slightly but remains in a small bear flag. It is also holding above that May peak, which may try to hold as support, but if that bear flag does breakdown, that may be tough to hold.

AGG (Bonds / F-fund) moved higher yesterday as yields came down for a second straight day, although the 10-year Treasury yield does remain above that key 2% level.

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

Tom Crowley

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SPY (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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AGG (F Fund) (delayed)

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