"If everyone is thinking alike, then somebody isn't thinking." -- General George S. Patton, Jr.

Lights, Camera ... Lack of Action?

A triple top. That's what I see. This level for the broader U.S. equity indices is approximately where we stood at the peak. This was as February turned into March. The rejection there was sharp at that time. The S&P 500 found support just above 2320 in late March, and then again in mid-April. Double bottom. By the last week of April, the S&P 500 was again flirting with 2400, where it has largely stayed, even piercing if not holding that psychological spot during yesterday's session. Do we belong here? The equity market almost seems sleepy, despite the potential break of a lofty level that stares traders right in their collective face.

This is the best earnings season seen in the U.S. in five years. No doubt. Improved earnings have now been in motion for three quarters, and this honestly has little to do with the election last November, though clearly there was a sizable boost across almost all sentimental indicators. Still, the pro-growth, pro-business intentions of the current administration have been slower to materialize than many of us had hoped for, given the dominant strength of one party over the other. So, a market rally based on fundamental strength? It sure is hard to argue with earnings growth of more than 13% year over year, and revenue growth approaching 8%. Still, no trader I know appears all that comfortable.

Yesterday, with the election in France fully digested by currency markets, the U.S. dollar increased in value against the euro. On top of that, yields on U.S. Treasuries rose ahead of today's $23 billion auction. This put a bit of a whammy on a few sectors, despite the equity markets flirtation with all-time highs during the session. The debt environment put some pressure on the bond proxies (utilities, real estate, telecom), as that rising dollar took a hatchet to gold & oil (both at multi-week lows), which in turn took their bite out of energy and materials type names. Still, the broader market hung in there.


Is the firing of FBI Director James Comey a negative catalyst for the marketplace? Good question. Thank you for bringing that up. The reflex answer is simple. Of course not. Not so fast, you say? Let's explore. The White House fired the man after recommendations came from Attorney General Jeff Sessions and his deputy Rod Rosenstein to do just that. Today, you will hear about the golden reputations of both Comey and of Rosenstein prior to their names becoming headline fodder. That is neither here nor there, in our world. We are about excelling in a changing environment. Simply put, does this change the environment?

It is clear that this individual had great impact upon the 2016 presidential election, and made some questionable decisions at that time. The move likely will serve to increase the partisan divide in Washington. That is bad for us. The left will claim the move to be political self-defense, while the right will claim the left to be disingenuous. This will weaken the environment we play in only if it undermines the administration's ability to move forward on policy. This further complicates the possible forward movement of any policy initiative requiring legislative approval. That means health care reform, and, yes, tax reform could be slowed down more so than they already were. Got it?

This morning, the markets seem to be taking the news almost in stride. The U.S. dollar is down to an insignificant degree against a basket of competitors, though Treasury yields have compressed a bit. Gold, which would find some safe-haven value at a time of insecurity, has indeed found a bid. My take: the situation bears watching, but for me, this is not enough of a catalyst on its own to reduce the levels of risk currently on my book. Still, hedging your riskiest positions (which should have already been done) might be wise.

My colleague Jim "RevShark" DePorre draws a similar conclusion in his morning column on our premium site Real Money, writing: "Is this event the catalyst the bears have been looking for? Probably not." Click here for a free 14-day Real Money trial and read his full analysis.

Who, Me?

We often mention overseas exposure as a major support for the currently positive first-quarter performance of many U.S. multi-nationals. That is quite simply why the S&P 500 has so decisively outperformed the Russell 2000 this year. Well, Bank of Japan Governor Haruhiko Kuroda testified before the Japanese Parliament on monetary policy yesterday. Japan is one of those improving economies that we keep talking about. Currently, Japanese unemployment is down to 2.8%, and GDP, due next week, is expected to print close to an annualized 1.0%. That may seem paltry, but if you don't follow, it's well above trend. Still, like in the U.S., wage growth remains an issue. Speculation on the forward-looking trajectory for policy is a topic of conversation for the BOJ, as it is for the European Central Bank.

Kuroda, for the most part, put any expectation of a stiffer policy going forward right to bed. The governor made clear that there is no rush to change the BOJ's 800-trillion yen per year quantitative easing program, nor will there be any adjustment to the 0% cap on the yield of the Japanese 10-year bond. Kuroda did actually bring up publishing an exit strategy from the BOJ's loose monetary policy stance, but also insisted that now is not the time (gladly pay you Tuesday for a hamburger today) for such a publication, as this would only cause undue speculation in financial markets. In Kuroda's defense, consumer level inflation across Japan remains well below target at 0.2% versus 2.0%. Do not expect anything from this quarter until you see some dramatic improvement on that line.

While on this topic, the European Central Bank currently holds the equivalent of $4.5 trillion worth of assets on its balance sheet. A slowdown in asset purchases has already started, but not so much has been said on where to go from here. ECB President Mario Draghi does speak to the Dutch House of Representatives at 8am ET this morning. The topic? Monetary policy, of course. Expect fluctuations in currency markets this morning.


08:30 - Import Prices (April):Expecting +0.2%, March -0.2% m/m.

08:30 - Export Prices (April):Expecting +0.2%, March +0.1% m/m. Import Prices were severely impacted by fuel pricing in March. That -0.2% month-over-month print looks more like +0.2% ex-fuel imports. That slice of the pie saw a drop of 3.8% m/m. Not a misprint. On the other side of the coin, agricultural exports saw a 0.9% m/m increase, which was not enough to move the needle at the headline. This data is more about energy prices these days than it is about cross border demand, which is at least part of the BLS' intended purpose here.

10:30 - Oil Inventories (Weekly):API -.5.8 million, Last Week -930,000 barrels.

10:30 - Gasoline Stocks (Weekly):API +3.2 million, Last Week +191,000 barrels. The American Petroleum Institution released some interesting data last night. The API reported a very large draw for WTI crude, but a large build in gasoline supplies as well. In after-hours trading, WTI moved higher in response to these numbers, after having kissed levels below $46 a barrel during the daily session yesterday. That support has persisted into this morning's early trade.

12:30 - Fed Speaker: Boston Fed Pres. Eric Rosengren, who spoke just yesterday, will speak today from South Burlington, Vermont. Rosengren, not a voting member of the FOMC this year, mentioned the possibility of needing to increase the pace of rate hikes this year due to low unemployment, yesterday. Rosengren also warned that reforming government sponsored agencies such as Fannie Mae (FNMA), and Freddie Mac (FMCC) could cause a disturbance in commercial real estate markets.

13:00 - Ten Year Note Auction. The U.S. Treasury will auction off $23 billion worth of 10-year paper today. The last similar auction, on April 11, sold $20 billion worth of the Notes at a high yield of 2.332% with a bid-to-cover ratio of 2.5. Indirect bidders (foreign accounts) took down 65% of that issue, which is normal. In comparison, U.S. 10-year paper yielded more than 2.4% yesterday.

13:20 - Fed Speaker:Minneapolis Fed Pres. Neel Kashkari also spoke just yesterday. Today, Kashkari, who is a voting member of the FOMC, is not expected to touch on policy. Instead, he will speak from Minneapolis on trust and ethics in the financial industry, which is where he seems more comfortable, in my opinion.

14:00 - Federal Budget Statement (April):Expecting $+175.4 billion, March $-176.2 billion. February was a very costly month for the U.S. Treasury. February is usually expensive in comparison to other months. That wasn't a shock. Then came March. Another expensive month, much more so than what was expected. That was a surprise. Expectations for this space today are for a large surplus. April is always a surplus month (tax deadline), but this expectation is a large number, even for April. We'll see.

Sarge's Trading Levels

These are my levels to watch today for where I think that the S&P 500, and the Russell 2000 might either pause or turn.

SPX: 2415, 2405, 2399, 2392, 2385, 2377
RUT: 1407, 1400, 1393, 1386, 1377, 1367

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: (XEC) - Get Report ($0.87), (VMC) - Get Report ($0.27), (WEN) - Get Report ($0.08)

After the Close: (FOXA) - Get Report ($0.48), (ELF) - Get Report ($0.05), (SNAP) - Get Report (-$0.21), (WFM) ($0.37)

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At the time of publication, Stephen Guilfoyle was long FNMA, although positions may change at any time.