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Thursday, July 5, 2018

Market Alert - Pre-Market

Futures vs FV: SP +16.28; DJ +164.18; NASDAQ +47.25

Futures are going to try higher yet again. Stocks moved higher on the WED half session but rolled over and sold off. Futures gapped higher today and have rallied into the 8:00 hour on the East coast -- just as WED. Have faded the past 45 minutes off the highs but obviously holding nice gains toward the open.

Trade: Perhaps this is helping though there are no real news stories. There is a sense the EU auto issue will be resolved but as usual there is back and forth on each trade issue. The story is the German ambassador is seeking 0% tariffs on auto sales between the US and EU. Awesome if it could happen.

A Chinese court hit MU with an injunction on selling chips due to a patent infringement finding, but MU says the order impacts a limited number of chip types. That speaks to the trade issue to me, i.e. another way to target the US as China does not sell enough goods to the US to offset tariffs the US may institute. Thus, the trade issues are not going away regardless of Europe and its cars. IP theft is still the key issue.

FOMC: This is the potential bogey in the sky for the early upside in stocks today. The minutes are out this afternoon and the hawkishness tone is what will tell most of the tale.

The Minutes make moving in on this early move higher tough. Trade gets most of the headlines but the Fed's tightening campaign is historically an issue for stocks. Yes they can rally as the Fed hikes, but with the yield curve quite flat and still flattening the fear is the Fed is hiking into a slow down and may yet again cause the recession it seeks to avoid or at least have ammunition to fight.

Bonds: 2.851% vs 2.833%. Bonds sell a bit, yields bounce back -- a bit

EUR/USD: 1.1712 vs 1.1665. Euro rebounds from weakness

USD/JPY: 110.58 vs 110.40

Oil: 74.15, +0.01

Gold: 1256.70, +3.20

There are still many good looking patterns and if the market can make this stand at support turn into a rally we certainly want to be in them. The FOMC Minutes represent a potential stumbling block that could knock the rally back or at least provide a dip to use as an entry.

We will see how well the plays move, and if solid we can initiate some partial positions and then see if the Fed gives an opportunity to add. As you can see, we feel that with the market not yet able to sustain a move despite holding support, rallies are more susceptible to struggling on FOMC comments than being propelled on beliefs the trade issues are resolved. Now if concrete deals are reached then stocks rally well. Today's EU story is promising but it is just promise from one person's statements. Again, there will be ebb and flow on trade. Today is some flow.

Jon Johnson, Chief Market Strategist

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