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The S&P 500 recently bounced off support near 1,600, worked back up to 1,650 before finding minor resistance and turning down again. The bounce was shallow and appeared to be more short covering and fast money, than committed, longer term holders. The index is now looks set on retesting the 1,600 support area. With initial jobless claim numbers slightly lower this morning, markets could either bounce or slip back to 1,600, depending how the data get interpreted throughout the trading day. Lately good news on the economy has been a deterrent to higher stocks prices as investors believe the fed may taper off QE. Of course bad news is still considered bad news. In a perfect world, investors want goldilocks economic growth, not too hot, not to cold. This would ensure fed keeps the QE pump rolling along. Market internals have continued to erode slightly in line with the markets recent pullback. With summer seasonality upon us, and June having produced negative returns 7 of the last 9 years, we are leaning towards a violation of the 1,600 support level. However we are respecting that level until violated. Overall we think this is a correction that will likely fall in the 5 to 10 % range, however potential of a breakout in yields and/or unleaded gas prices could cause problems for the markets.
Market risk model slipping toward Neutral from Bullish
Subtle degradation in # of IQ rated stocks with 70 or > IQ Ranks
Lot of IQ Buys 1 Mos. ago, which turned into lots of NEUTRALs 1 week ago, This show near-term momentum eroding
S&P 500 Index Monthly % returns (SPX) June has produced negative returns 7 of the last 9 years.
S&P 500 Index (SPX) - Daily Chart
S&P 500 sold off at upper channel line (upper green line and red arrow) in what appear to be an exhaustion move. Shares subsequently sold down to breakout spot near 1,600 (purple line), had a shallow bounce and are now retesting.
S&P 500 Constituents at 52Wk. High vs. Low - Daily Chart
SPX Index, Constituents trading at 52 Week H/L
150 1,600 1,550
12/12/2012 # High(52)
Broad swath of groups participating, which is 1,350 New 52 WK. high suffer big contraction good – weaker groups are generally defensive in 1,300 2/12/2013 4/12/2013 6/12/2013 nature.
NASDAQ Composite Index (CCMP) - Daily Chart
The NASDAQ Composite is still above trend (green) but is rapidly approaching its first key support test in the 3,375 – 3,350 area (orange band and arrows)
National Average Gasoline Prices - Weekly Chart.
Gas prices have been range bound for some time but are now approaching the upper end of a triangle as summer driving season approaches. Any upside breakout here would be a negative for the consumer and the market.
10 Year Yields backing up - Daily Chart
Bond yields have risen aggressively of late. Continued upward move by rates would only add to that pressure