With the only headlines on Sunday coming from the ACM Awards, the S&P futures opened strong. It is refreshing not to see the market crashed by some political headline. The S&P futures opened at +18 and then settled at +16. That would be a great start for Monday. With the Q1 earnings cycle beginning this week, it would be outstanding if Russia did not counter attack and politicians would actually stay in their offices and get some work done rather than tossing headlines back and forth.

Last week was positive with the Dow gaining 1.8%, S&P 2% and the Nasdaq 2.8%. I would be thrilled if we could just repeat that performance only with fewer 400-point intraday declines. If the tariff headlines fade we could actually see the market rise on fundamentals like economics and earnings. The few weak economic reports could actually be market positive since it could keep the Fed on the sidelines longer. After the FOMC minutes last week the expectations rose for a faster hike cycle but the miss on the jobs numbers and declining sentiment from the tariff headlines could put them back in the range of only 2 more hikes this year instead of 3.

The earnings should distract investors from the political battles in progress. The market needs a fundamental distraction to finally get us out of the correction blues.

The volume last week was terrible with two days at 6.1 billion, one day at 6.2 billion and Friday only had 5.8 billion shares total volume. Tuesday was the highest at 7.1 billion. With four days averaging just over 6.0 billion shares, this was a total lack of conviction in either direction. Traders were sitting on the sidelines waiting for the Syrian shoe to drop.

Now that Syria is in the rear view mirror, traders should get on with business. The only qualification there is that Russia said there would be consequences and preparations were already underway for a "predetermined course of action." Nobody knows what that is or if it is just tough talk from a disgraced leader.

There is a lot on the calendar for next week with Retail Sales, Philly Fed Manufacturing, New Residential Construction and several other economic reports. The Fed Beige Book is out on Wednesday and it is expected to be a little more upbeat this month. Recent updates have overused the word "moderate" and based on the FOMC minutes they may have to use a different word.

There are ten Fed speeches this week.

The big news for next week is the start of the Q1 earnings cycle. Bank of America and Netflix lead it off on Monday and Goldman and IBM are the highlights on Tuesday. There are seven Dow components, UNH, GS, IBM, JNJ, AXP, PG and GE and 60 S&P-500 companies. The following week has 12 Dow components.

The regular earnings cycle should be market positive given the 18.6% expectations for earnings growth. I expect companies to give more detailed explanations for their use of the cash windfall from tax reform. There should be additional dividends announced as well as stock buybacks. Based on recent announcements it appears the buybacks are going to be larger than previously expected.

Some 30 S&P companies have already reported with 70% beating on earnings and 76.7% beating on revenue. There have been 73 guidance warnings and 61 positive revisions. The current forward PE is 16.4.

Week after week, I try to assign some sanity to the market by discussing the technical points on the charts. Lately that has been an exercise in futility because all the market movement has been coming from the political headlines. They S&P has made an intraday move of 1% or more on 19 of the last 23 days. The Dow has posted intraday moves of 300 points or more on 21 of the last 25 sessions. Some of those swings have been over 700 points.

Volatility has been ridiculous. Typically bouts of high volatility last 4-6 weeks. This one we well into its third month. However, over the last two days, the VIX has actually gone down and Friday saw a 400-point intraday dip on the Dow with a -123 close. This is encouraging. A sharply declining VIX in a negative market suggests investors are cashing in their S&P puts thinking the next market move will be higher.

On the S&P the 50-day crossed below the 100-day and the index stalled again at the 2,675 resistance level. If a trader suddenly woke up from a month long coma and knew nothing about the political and geopolitical events and you showed him this chart, he would be bearish. The repeated failure at resistance in a longer-term downtrend and the bearish average cross, suggests the S&P is going lower.

We cannot do anything about the political headlines other than hope the market grows tired of the constant soap opera and ignores them.

Technicians claim all news is always factored into the chart. The market is an excellent discounting mechanism and technicians believe the worry about upcoming events is always factored in on a continuing basis. To some extent, I agree with that. However, we have been hit with so many "out of the blue" events lately, the market was reacting rather than anticipating. The declining VIX could be the market anticipating a positive week because all the bad news is already factored into the market.

Let's hope that is the case and we have another gap open on Monday that takes us through that 2,675 resistance level and the resistance at 2,700. Nothing promotes a bull market better than bullish market gains. Gains produce additional gains, until an unexpected event appears.

There are analysts predicting another retest of the recent lows around 2,580 or even just the 200-day at 2,599. Fortunately, they are going to give us a nice short squeeze if they are wrong. The more people who predict a retest the less likely it will happen.

The Dow A/D line was almost dead even on Friday with the majority of the decline coming from just three stocks. With seven Dow components reporting next week there is a good chance we will see some additional volatility. The Dow actually traded well over resistance at 24,500 on Friday with a 24,646 high before the 400-point afternoon decline. If the Dow can close over 24,500 and preferably 24,700 as well, we could see some significant short covering. Assuming the earnings are good and post earnings depression is minimal, the next major resistance is 25,000.

The Nasdaq big caps were also evenly matched between advancers and decliners. The minor 33-point decline for the day knocked the index back to prior resistance at 7,100 after trading as high as 7,183. That is a major decline but the index still closed over that critical 7,100 level. Netflix and IBM will determine Nasdaq direction early in the week. IBM is not on the Nasdaq but it is a monster tech stocks that will drive direction.

The small cap Russell 2000 closed well over resistance at 1,550 on Thursday but was knocked back on Friday. The small caps have been nearly as bullish as the Nasdaq but they need to continue their recent upward trend or the broader market could weaken as well.

We have no control of the headlines but assuming nothing new appears before Monday's open, I am slightly bullish about the outlook for next week. The bank earnings were a downer on Friday but with a broader spectrum of reports due out next week, the market should improve. The keyword there is "should" and markets tend to have a mind of their own.

If we get another lower open on Monday, I would be a buyer. If the market gaps open, I would be cautious about chasing it. Look for an intraday retracement in order to avoid buying options at the high for the day. Remember, you do not have to trade on Monday. It is perfectly allowable for traders to simply watch on Monday as all of last week's forces fade as new ones become front and center. There is a reason the second day of the week is called Turnaround Tuesday because that tends to happen a lot at least on an intraday basis.

Enter passively, exit aggressively!

Jim Brown

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