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U.S. stocks are mixed on Wall Street, led by declines in phone and technology companies. Markets are starting to consolidate after major upside momentum over the past several months.

Global Economy – European stocks are down as weakness in Alphabet drags down technology stocks and the overall market.

Stock losses were contained as energy stocks gained after Aug WTI crude oil climbed on a weaker dollar and on expectations that EIA data Wednesday will show U.S. crude inventories fell -2.25 million bbl last week.

China’s Shanghai Composite erased early losses and rallied to a 2-1/4 month high in the last hour of trading on speculation of state-sponsored buying of equities.

EUR/USD up at a 1-1/2 week high after ECB President Draghi said that “the threat of deflation is gone and reflationary forces are at play,” which fueled speculation the ECB may be closer to tapering its stimulus measures.

U.S. Economy – U.S. home prices rose at a healthy clip in April, though the increase slowed a bit from the previous two months.

The Standard & Poor’s CoreLogic Case-Shiller 20-city home price index climbed 5.7 percent in April, after increases of 5.9 percent in March and February. Those gains were the highest in nearly three years.

Home prices are rising roughly twice as fast as average wages, a dynamic that may eventually stifle sales by thwarting would-be homeowners. Bidding wars among buyers competing for a limited supply of available homes are driving up costs. Low mortgage rates are also encouraging more Americans to buy homes.

Unlike other readings on consumer spirits, the consumer confidence index has not been falling back from post-election highs.

For the first-time since the dotcom bubble nearly 20 years ago, the index has posted 6 straight readings over 110 including May’s 117.9.

June’s consensus is for a 7th plus 110 showing, at 116.7. A standout positive in the May report was a sharp move downward in those saying jobs-are-to-get, at only 18.2 percent and a new low for the ongoing expansion.

Market Sentiment – Sep 10-year T-note prices are down -7.5 ticks on the heels of a slide in German bund prices to a 1-week low on hawkish comments from ECB President Drahi who said that the effects that keep inflation subdued are temporary.

Speaking at an event in Sydney, San Francisco Fed President Williams said that “the U.S. economy has regained, and even surpassed, full employment benchmarks.”

He added that “although our inflation rate is still somewhat below our 2% medium-term target, I and my colleagues on the FOMC expect us to reach that goal in the next year or so.

The probability that the Federal Open Market Committee will increase its fed funds rate at the December 13 meeting is 54%, which compares to 50% yesterday.

Technically, we’ve been anticipating bonds to begin seeing downside corrective pressure, since the long term trend remains bearish at this time.

I’m expecting more downside to develop in the short term, which will increase downside momentum and cause the short term trend to move inline with the bearish long term downtrend once again.

10 day RSI is beginning to decline and we should expect downside momentum to develop once again.

Stock Market Analysis – Stock indices continue to lose directional bias since there’s very little institutional accumulation coming into the market at this time.

SPY is setting up for a triangle pattern, which is indicative of sideways trading action with decline in trading range and volatility in the short term.

With July approaching, I’m not expecting major increase in volatility or trading range for the near term, especially in light of VIX levels declining to levels near historic lows.

VIX is measured by at the money SP 500 options traders and dictates the level of fear in the short term market action.

As long as VIX remains below 20 level, the markets should remain fairly stable, unless we see some type of Global drama deveop, which is less likely during summer months.

At the present time, the biggest concern is the tech sector and whether the current upswing fizzles out or continues over the near term time period.

The increase in volatility on the way down less than 2 weeks ago temporarily halted the upswing and increased congestion, which is very typical and foreseeable as a result of increased volatility, which is a trend killer.

Don’t expect major directional bias until the SP 500 breaks through the congestion pattern that’s setting up in the short term.

Expect lower level of volatility to contiue. Consumer sentiment is off the charts, which indicates continued upside in the market, but not till major indices have time to cool off and regain some balance.

I will update you tomorrow as usual.

Roger Scott