SPY last week was rejected at channel resistance, coming up $0.63 short of surpassing the all-time high of $286.63 reached January 26. The path of least resistance is down. A covered put might help.

There are interesting dynamics at play in earnings estimates for US large-caps. Operating estimates for S&P 500 companies are sideways to slightly down for 2018 but still rising for next. As of last Friday, 2019 estimates were $177.13 – a new high – even as 2018 stood at $157.90, down $0.34 from a week ago. In fact, 2018 is essentially flat the past three months (Chart 1).

This phenomenon is also evident in mid- and small-caps. As of last Friday, 2019 operating earnings estimates for the S&P 400 rose to a new high $123.08. In contrast, 2018 peaked at $106.66 three months ago, with the latest consensus of $104.23. Similarly, 2019 estimates for the S&P 600 were $61.51 last Friday, versus $61.63 toward the end of June; for 2018, latest estimates were $48.07, a full $2.59 lower from the third week of March.

This is typical of how the sell-side normally works. More often than not, they start out a year strong and then gradually bring the estimates down as time passes. Estimates for both 2018 and 2019 took off as the Tax Cuts and Jobs Act of 2017 was signed into law on December 22 last year. Like clockwork, with five more months before the year even begins, 2019 estimates are still rising. The question is, how reliable are these estimates?

For large-caps in particular, one potential headwind is the US dollar. The US dollar index dropped 15.1 percent between early last year and February this year. It bottomed at 88.15 on February 16, then went sideways for a couple of months, followed by a rally into the end of May. Then, unable to take out 95-plus, it once again went sideways for 10 weeks. This changed last Friday when Turkey-inspired one-percent slide in the euro helped the US dollar index break out (Chart 2). The euro makes up 57.6 percent of the index. This is now an important level to watch.