• 287 days Will The ECB Continue To Hike Rates?
  • 288 days Forbes: Aramco Remains Largest Company In The Middle East
  • 289 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 689 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 696 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 699 days Big Tech Disappoints Investors on Earnings Calls
  • 700 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 702 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 706 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 707 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 709 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 710 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
How Millennials Are Reshaping Real Estate

How Millennials Are Reshaping Real Estate

The real estate market is…

Trade In Counterfeit Goods Hits Half A Trillion Dollars

Trade In Counterfeit Goods Hits Half A Trillion Dollars

The counterfeit market has breached…

  1. Home
  2. Markets
  3. Other

Stock Bulls Face Key Tests This Week

Stocks rallied to kick-off the holiday-shortened week on better than expected economic news. From Bloomberg:

The Institute for Supply Management's (ISM) manufacturing index increased to 50.9 in June from 49 a month earlier, the Tempe, Arizona-based group said today. The median forecast of 85 economists surveyed by Bloomberg called for the measure to rise to 50.5. A reading of 50 is the dividing line between expansion and contraction. Another report from the Commerce Department showed construction spending increased 0.5 percent in May.

SPX Daily Chart


Hurdles From Fed and Technicals

If you read between the lines of last week's speech from Fed Governor Jeremy C. Stein, it is fair to say the odds are high the Fed has already decided to taper the bond purchase program at the September meeting. Below is an important portion of Governor Stein's speech, which seems to say "we have enough data in hand."

A key point is that as we approach an FOMC meeting where an adjustment decision looms, it is appropriate to give relatively heavy weight to the accumulated stock of progress toward our labor market objective and to not be excessively sensitive to the sort of near-term momentum captured by, for example, the last payroll number that comes in just before the meeting. In part, this principle just reflects sound statistical inference -- one doesn't want to put too much weight on one or two noisy observations.

The technicals described in this week's video seem to reflect the expectation from market participants that a tapering announcement is coming this fall.


Japan Provided A Spark

Investors seemed to put the concerns about Fed policy on the back burner Monday. Instead they chose to focus on the ISM number and some better news from the Land of the Rising Sun. From Bloomberg:

In Japan, the quarterly Tankan index showed positive sentiment among large manufacturers for the first time in seven quarters. The measure rose to 4 in June from minus 8 in March, the Bank of Japan said. A positive figure means that optimists outnumber pessimists. Economists had predicted a reading of 3.


Bulls Face Overhead Resistance

The question going forward for investors is whether improving economic data can offset concerns about the Fed tweaking their bond purchase program. In addition to concerns about Fed policy, the bulls also have three areas of possible resistance to deal with during the remainder of the week. In the chart of the S&P 500 below, the widely-followed 50-day moving average is shown in blue (see point A). Downward-sloping trendlines (B & C) also may act as resistance giving traders a reason to lighten up. The 50-day moving average currently sits at 1623. A move above 1642 would be required to clear both trendlines A and B.

SPX Daily Chart 2


Investment Implications

As long as the S&P 500 remains below the key levels noted above, we will err on the side of maintaining a well-above average cash position. A weekly close above both 1623 and 1642 would increase our openness to redeploying some cash into stronger areas of the market, such as small-caps (IWM), mid-caps (MDY), banks (KBE), and biotech (IBB).

 

Back to homepage

Leave a comment

Leave a comment