Summary:
I plan on publishing a midyear economic and market update sometime next week. In advance, here are a few comments on the recent behavior of the stock market.
Friday marked another day when what was hyped by Wall Street as containing "constructive" news -- good IBM earnings and tame June consumer prices -- translated into a session in which strong gains early on could not hold. The DJIA saw a 75-point advance turn into a 23-point loss. Putting in a much worse performance was the NASDAQ 100. Its early 10-point, 0.7% gain, became a 24-point, 1.7% loss by the close.
Put somewhat euphemistically, July has been "disappointing" for the bulls. And last week's expiration worked no magic, nor did Wall Street's attempts at promoting "better-than-expected" earnings, inflation data, etc., etc.
For July to date, my seven-measure equity-market tracking group is down an average 4.6%, with losses running in a range of 2.2% for the NYSE Composite, to a much larger 8.2% for the NASDAQ 100, the latter reflecting the recent bloodletting in the tech sector.
And this not-so-good July showing has now pushed all but one of the tracking group's seven components into the red for the year. The group is down 1.7%, on average, for 2004 to date, with returns running in a range of +0.2% for the NYSE Composite, to minus 5.2% for the NASDAQ 100. The balance of the group's year-to-date returns are: Russell 2000, -0.3%; Wilshire 5000, -0.6%; S&P 500, -1.0%; Value Line, -1.7%, and DJIA, -3.0%.
Not long ago, I reaffirmed my opinion that July was likely to be a "problem" month. In addition, I opined the likelihood of serious breaches of respective 200-day moving averages -- perhaps double-digit serious. At the time, the starting points were higher, but the following table breaks out what 5% and 10% moving-average violations would entail for the DJIA, NASDAQ Composite and S&P 500, measured from Friday's closing prices. As of Friday, each proxy stood below its 200-day moving average.
| 200-DAY MOVING-AVERAGE VIOLATIONS -- VALUES PROJECTED FROM CLOSE ON 07/16/04 | |||||||
| Measure | 07/16 Close | MA Violation/ Resulting Price | % Decl/Gain From 07/16 Close At Violation Of: | ||||
| 0% | 5% | 10% | 0% | 5% | 10% | ||
| DJIA | 10140 | 10233 | 9721 | 9210 | +0.9 | -4.1 | -9.2 |
| NAZ Comp. | 1883 | 1987 | 1888 | 1788 | +5.5 | +0.3 | -5.0 |
| S&P 500 | 1101 | 1107 | 1052 | 996 | +0.5 | -4.5 | -9.5 |
I have plenty of ideas why this is happening and happening now, many of which have been discussed in past research and forecasts. I will reexamine this in next week's review/update research missive.
