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Market Summary

With three trading days left in the second quarter, the Dow industrials and S&P 500 are tracking positive for the past three months and up for the year, but they're both negative for June. The major indexes clocked weekly losses as tense negotiations between Greece and its lenders keeps investors anxious. The S&P 500 index recorded a 0.4% loss over the week. The Dow Jones Industrial Average also clocked in a weekly loss, falling 0.4% over the week and the Nasdaq Composite declined 0.7% for the week.

YTD Performance

The Russell 2000 Index had been leading the larger cap indexes higher. Now the all the major indexes are in a downtrend which indicates that in the near term stock prices have topped out.

SPX Daily Chart

A tool to help confirm the overall market trend is the Bullish Percent Index (BPI). The Bullish Index is a popular market "breadth" indicator used to gauge the internal strength/weakness of the market. It is the number of stocks in an index (or sector) that have point & figure buy signals relative to the total number of stocks that comprise the index (or sector). So essentially it is the percentage of stocks that have buy signals. Like many of the market internal indicators, it is used both to confirm a move in the market and as a non-confirmation and therefore divergence indication. If the market is strong and moving up, the BPI should also be moving higher as more and more stocks are purchased.

Recently we opined "...Keep an eye on the Nasdaq Composite Bullish Percent Index (BPCOMPQ) chart. As long as the BPCOMPQ remains above its trend line this should be considered a positive sign for the overall market. If the Nasdaq Composite BPI does break into a downtrend along with the other major indexes, then this will confirm the market is pulling back..." In the updated chart below the BPCOMPQ fell below its uptrend line. If the downtrend is confirmed expect the overall stock market to stall.

NASDAQ Composite Bullish Percent Index Daily Chart

The Transportation Index has been in a downtrend since the end of April. The Dow transports have entered correction territory. Even if the DOW Jones Industrial Average moves back toward recent highs don't expect another bullish leg until the Transportation Index starts trending higher.

Dow Daily Chart

Treasury prices fell on Friday, driving yields to their highest level since September, as investors continued to watch lingering negotiations between Greece and its creditors while assessing strong economic data. A huge jump in consumer sentiment indicates improving incomes and positive prospects for the economy. This leads to a strengthening of the US dollar. It also makes dollar-denominated gold less attractive which is why gold has been heading down the past few weeks.

UUP Daily Chart

Market Outlook

A report showing consumer sentiment rising in June to its highest level in five months, topping a consensus forecast, helped provide support for equities, but hand wringing over Greece's fate is keeping stocks in check. "The market is modestly higher year-to-date, despite all the bad news, including a weak economy during the first quarter, the Greece situation and geopolitical news. And when you add dividends, the return during the first half is pretty good," said Bruce Bittles, chief investment strategist at R.W. Baird & Co. We are cautious because valuations are stretched, and the fact the utilities and transports are down more than 10% is worrisome.

Quarter Performance

A standard chart that we use to help confirm the overall market trend is the Momentum Factor ETF (MTUM) chart. Momentum Factor ETF is an investment that seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum. This type of momentum fund is considered a reliable proxy for the general stock market trend. We prefer to use the Heikin-Ashi format to display the Momentum Factor ETF. Heikin-Ashi candlestick charts are designed to filter out volatility in an effort to better capture the true trend.

Last week's analysis played out as advertised "...Look for the MTUM ETF to continue moving higher and establish a new resistance level..." The updated Momentum Factor ETF chart displays the new resistance. The major indexes will probably trade range bound heading into quarterly earnings.

MTUM Daily Chart

The CBOE Volatility Index (VIX) is known as the market's "fear gauge" because it tracks the expected volatility priced into short-term S&P 500 Index options. When stocks stumble, the uptick in volatility and the demand for index put options tends to drive up the price of options premiums and sends VIX higher. We are also approaching the Fourth of July holiday, and the week leading up to the holiday generally has a bullish bias. So, as things are relatively quiet, this is the time to buy insurance, when volatility is low. The updated chart has the VIX and S&P 500 index headed for another convergence. Don't expect the two lines to fully converge unless there are substantial second-quarter earnings disappointments.

VIX Daily Chart

The updated Put/Call ratio shows traders are basically neutral about the short term market direction as they have approximately an equal number of calls and puts.

Total Put/Call Ratio

The American Association of Individual Investors (AAII) Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership on a weekly basis. The current survey result is for the week ending 6/24/2015. The most recent AAII survey showed 42.80% of investors polled have neutral outlooks for the market for the next six months, while 35.60% are bullish and 21.70% bearish. Expect the bullish percent to increase at the expense of the neutral number as second-quarter earnings season progresses and traders respond earnings announcements.

AAII Sentiment

The Nation Association of Active Investment Managers (NAAIM) Exposure Index represents the average exposure to US Equity markets reported by NAAIM members. The blue bars depict a two-week moving average of the NAAIM managers' responses. NAAIM member firms who are active money managers are asked each week to provide a number which represents their overall equity exposure at the market close on a specific day of the week, currently Wednesdays. Responses can vary widely as indicated below. Responses are tallied and averaged to provide the average long (or short) position or all NAAIM managers, as a group. As the name indicates, the NAAIM Exposure Index provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks. First-quarter NAAIM exposure index averaged 83.02%. Last week the NAAIM exposure index was 58.64%, and the current week's exposure is 58.96%. Equity exposure remains relatively low as Money Managers complete the June quarterly rebalancing. Also traders are holding funds in reserve to bid on shares during the upcoming quarterly earnings season.

NAAIM Exposure

Trading Strategy

The markets sell off, and everyone thinks the world is coming to an end and that a major correction is under way, and then the next thing you know the stocks return to their highs. Like it or not zero borrowing cost continues to trump all. Last week we said "...According to the Stock Trader's Almanac the week after Triple-Witching Day is horrendous. This week has experienced DJIA losses in 22 of the last 25..." This past week added to the losing average as all the major indexes ended the week lower. We also commented "...Health Care stocks will get a boost if the pending Supreme Court ruling on Obamacare is decided in favor of the maintaining subsidies for states without a healthcare exchange..." The SCOTUS supported federal subsidies for Obamacare and healthcare stocks responded be jumping to all time highs.

S&P Sector ETF 30-Day Performance

Feel free to contact me with questions,


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