The Russell 2000, S&P 100, NASDAQ 100 and Dow Jones Industrial Average were higher for the week. The Big Picture [monthly bias] for the NASDAQ 100, the Dow Jones Industrial Average, Russell 2000 and the S&P 100 remain positive.
1.Geopolitical and Fiscal Events. Monday sees President Trump meet with Russian President Putin. Also, on Monday the IMF releases its latest world economic outlook. Tuesday sees Federal Reserve Chairman Powell begin two days of Humphrey Hawkins testimony. Friday sees Federal Reserve St. Louis President James Bullard speak from Scotland. Saturday see G-20 finance ministers meet in Buenos Aires.
2.Economic Releases. Releases of note this week and next include the weekly chain store sales, oil/gas numbers, mortgage applications and jobless claims as well as retail sales, industrial production, housing starts, Beige Book and leading indicators.
3.Earnings Releases. Notable releases this upcoming week include BAC NFLX JNJ UNH NVS IBM MSFT TSM GE HON.
Monday, July 16
June Retail Sales are due out at 8:30 a.m. EDT and are expected to fall to 0.5% from 0.8%.
President Trump meets with Russian President Vladimir Putin meet in Helsinki.
Amazon (AMZN) runs its Prime Day starting at 3:00 p.m. EDT and lasts into Wednesday morning. The stock is a Type 2 Recognized Strength with no one short.
The International Monetary Fund (IMF) releases its latest World Economic Outlook.
Tuesday, July 17
June Industrial Production is due out at 9:15 a.m. EDT and is expected to rise to 0.5% from -0.1%.
Federal Reserve Chairman Jerome Powell begins two days of Humphrey Hawkins testimony as he starts with the Senate Banking Committee.
Wednesday, July 18
June Housing Starts are due out at 8:30 a.m. EDT and are expected to drop to 1,318,000 from 1,350,000.
June Beige Book is due out at 2:00 p.m. EDT.
Thursday, July 19
June Leading Indicators are due out at 10:00 a.m. EDT and are expected to improve to 0.4% from 0.2%.
Friday, July 20
G-20 Finance Ministers meet in Buenos Aires with trade the main topic.
Next up we have some comments on the U.S. and Russian summit from CNN.
The U.S. and Russia Summit is underway this morning in Helsinki. This morning we turn to "fake news" CNN for their analysis of the summit. The big question is will anything materialize from the summit?
In our opinion, just the fact that these two countries are meeting is a positive. This is similar to the U.S. meeting with North Korea. Clearly, Russia hacked their way through the 2016 election and we need to be on the watch for midterm elections.
Last we take a look at volatility through the VIX.
Currently, volatility has calmed down since the end of March but we are still seeing some intraday volatility. The traditional measure of volatility that most market participants watch is the CBOE Volatility Index (VIX) and in the last week of June it rose on the 25th to an intraday high of 19.61. It finished the month of June at 16.09 and currently sits at 12.18 through last Friday's close.
Historically, above 20 on the VIX is where the S&P 500 begins to struggle. The VIX rose above 20 in February, March and April as the S&P 500 fell. Until the VIX is back above 20, it will be hard for credit and currency problems to become evident and impact the direction of the stock market.
The last credit debacle was in 2007 and 2008. We all know about the housing crisis of this time period. The VIX climbed above and stayed above 20 during July and August 2007 as well as November and December 2007. The drops in 2007 were -3% and then -6%.
In 2008, the VIX stayed above 20 from January through April of 2008 as well as June through December. The S&P 500 fell -38.44% in 2008. Therefore, one can conclude with history of 2007 and 2008 that the VIX will stay above 20 during a credit event.
The last notable currency event was in 1998. The VIX stayed above 20 from July through year end. In August of 1998, the Russians devalued the ruble and defaulted on their debt. Markets worldwide struggled with this event as the S&P 500 fell 17.16% from July through October of 1998.
By looking at 2007-2008 and 1998, we can see how we can use the VIX to assess in very simple terms if there is a credit or currency issue. Until the VIX gets back above 20, there is no reason to bother worrying about the next credit or currency crisis.
However, there is a good chance that the VIX will rise above 20 in the next few months. Late summer and early fall typically sees a rise in the VIX above 20. We did not get such a rise last fall in what was the greatest non vol year we have seen in quite some time. It should not repeat again this year.
2016 did see the VIX rise to a high of 23.01. 2015 saw a rise to 53.29. 2014 saw a rise to 31.06. 2013 saw a pop to 21.91. 2012 saw 22.72. The trend is very obvious. Just like leaves dropping off trees in the fall, the VIX tends to rise.
Using the VIX in this manner will prove to be helpful in avoiding over thinking markets, which is the Achilles heel of most bearish investors.