[MM_Member_Data name=’firstName’],
U.S. stock indexes moved lower Thursday, giving up some of their gains from the day before.
Technology stocks were down the most.
Utilities, real estate companies and other high-dividend stocks also fell. Banks led the gainers after the Federal Reserve said they can buy back more stock and raise their dividends.
Global Economy – European stocks are down, led by a sell-off in utility stocks, as expectations increase that financial conditions in Europe will be tightened as economic growth picks up.
The 10-year German bund yield climbed to a 1-1/4 month high of after Eurozone Jun economic confidence rose more-than-expected to a 9-3/4 year high, which bolstered speculation the ECB will soon begin to taper QE.
A rally in USD/JPY to a 5-week high spurred gains in Japanese exporter stocks and pushed the Nikkei Stock Index up to a 1-week high.
German Jul Gaff consumer confidence rose +0.2 to 10.6, stronger than expectations of no change at 10.4 and a record high (data from 2005).
Eurozone Jun economic confidence rose +1.9 to 111.1, stronger than expectations of +0.3 to 109.5 and a 9-3/4 year high. The Jun business climate indicator rose +0.25 to 1.15, stronger than expectations of +0.04 to 0.94 and a 6-year high.
Japan May retail sales fell -1.6% m/m, weaker than expectations of -1.0% m/m and the biggest decline in 9 months.
U.S. Economy – FED released GDP data before the opening bell. The first-quarter was still weak but does get an upgrade with today’s third estimate, now at a 1.4 percent annualized rate vs 1.2 percent and 0.7 percent in prior estimates. Consumer spending also gets an upgrade, to 1.1 percent from prior estimates of 0.6 percent and 0.3 percent. This had been the weakest consumer showing in 7 years but is now the weakest in 4 years.
Slower inventory growth stripped 1.1 percentage points from the first quarter rate. Looking at final sales, which exclude inventories, growth was very respectable at 2.6 percent. Both residential investment and business investment were the big positives that offset consumer weakness, adding 0.5 points and 1.2 points respectively. Government purchases subtracted 0.2 points as did net exports.
Jobless claims remain solidly stable at historic lows. Initial claims did inch 2,000 higher in the June 24 week but the 4-week average fell slightly to 242,250 and continues, as it has for the last 2 months, to hold in a tight range near 240,000.
Continuing claims also inched higher to 1.948 million in lagging data for the June 17 week with this 4-week average moving to 1.939 million which is slightly above recent trend.
Market Sentiment – The long bond continues to trade lower as expected. I’m anticipating more downside in the weeks ahead, till we see price revert back to the main trend – which is lower.
We may see mild upside momentum, but ultimately, expect price to gravitate towards the 50 day line to the downside over the next few weeks and possibly sooner.
RSI Oscillator is neutral at this time, which tells us that price is not reaching oversold level just yet. I’m anticipating that momentum will become oversold near the 50 day line. Expect bounce off the 50 day line and more downside after minor corrective action.
Stock Market Analysis – As we expected over the past few weeks, the NASDAQ continues to lose strength mostly due to lack of instutitional accumulation in the semiconductor sector.
The QQQ is now trading below the 50 day line and I’m expecting the downside pressure to continue till all the stops that are placed slightly below the 50 day line are triggered.
The reason why I believe the QQQ has more downside similar to my logic in regards to the long bond. RSI oscillator is slightly below neutral on the QQQ, but not oversold and price typically continues to lose momentum to the downside in tech stocks, till RSI is at the 30 level or even lower.
Till we see RSI break below 30, we can expect more downside or possibly more congestion in the short term, till the RSI reaches balance.
Below you can see price chart of the main culprit that’s largely responsible for the corrective pressure out of QQQ. The chart below represent the SOXX index, which tracks semiconductors.
While Soxx was trading higher and gaining momentum, overall QQQ was very strong. But as soon as institutional traders abandoned semiconductors a few weeks back, the QQQ has been lagging behind the SP 500 and Dow Jones.
The 10 day RSI is getting closer to 30, which tells me that chips are due for a bounce in the short term. The volatility and selling pressure in stronger in SOXX than in the QQQ, which tells me that SOXX is going to bottom out before the QQQ and start rising quicker as well.
Pay attention to SOXX over the next few sessions and how RSI oscillator reacts to price action. Once we reach 30th level, the odds will be strong that institutional traders will begin accumulationg chip stocks, which will inevitably give rise to the overall QQQ.
Wishing you the best,
Roger Scott