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Global Economy – European stocks are up as the markets await the minutes of the Jun 13-14FOMC meeting for clues as to when the Fed may start to shrink its balance sheet.

On the positive side for European stocks was the upward revision to the Eurozone Jun composite PMI to 56.3 from the previously reported 55.7.

Weakness in energy stocks has limited the upside for equities as the price of Aug WTI crude oil . Crude oil prices came under pressure after Russia said it wants to stick to the current OPEC deal and would oppose any proposal for deeper crude production cuts when OPEC meets later this month.

China’s Shanghai Composite rallied to a 2-1/2 month high on signs of ample liquidity in the financial system after China’s seven-day repo rate fell -5.45 bp to 2.708%, a 2-1/2 month low.

Japan’s Nikkei Stock Index recovered from a 2-week low and closed higher as exporter stocks rallied after USD/JPY climbed to a 1-1/2 month high, which boosts the earnings prospects of exporters.

The Eurozone Jun Markit composite PMI was revised higher to 56.3 from the previously reported 55.7.

The UK Jun Markit/CIPS services PMI fell -0.4 to 53.4, weaker than expectations of -0.3 to 53.5.

U.S. Economy – Same store sales were up 2.7 percent year-on-year in the July 1 week, picking up the pace by 0.5 percentage points from the previous week to a tick below the strongest growth since January 2016 posted two weeks ago.

Month-to-date same store sales versus the prior month also strengthened and were up 0.7 percent, an 0.1 percentage point improvement from the prior week.

Full month year-on-year same store sales were up 2.5 percent, back up to the strongest pace in at least year also seen in the June 3 and June 17 weeks.

The week’s survey results put a strong finish on a very good month for retailers in Redbook’s sample, who are reporting the best sales performance comparisons in 17 months after faltering sales in May, and suggest strong ex-auto less gas retail sales for the month.

Market Sentiment – Bonds are sligthly weaker as price on the TLT reaches 1 1/2 month low.

10 day RSI is now in the 30’s and expected to move into the lower 30’s or upper 20’s before the downtrend turns into a range bound trading range or alternatively, bounces back up to the upside, before heading lower and violating the 50 day line to the downside.

 

It’s only a matter of time till the long term trend and the short term trend move in the same direction and what we are seeing right now is exactly that.

We can expect some degree of congestion or sideways trading action till price begins moving lower once again, especially in light of RSI reaching into oversold territory at this time.

Stock Market Analysis – As we expected last few sessions, the retail sector which has been strongly laggin behind the overall market appears to be running out of upside momentum and turning lower at the 50 day moving average.

This was expected and tells me that economy is not improving nearly as fast as anticipated last November, when the stock market began moving substantially higher, right after the Presidential election.

 

Keep in mind, the retail is responsible for large % of GDP and without retail trading higher and exhibiting reasonable amount of strength, the odds of seeing overall market make substantial headway to the upside is highly improbable, at least till we see strong trend develop and price remain above the 50 day line once again.

Lastly, I’ve been pointing out that tech is becoming increasingly vulnerable due to SOXX index trading lower and violating the 50 day line to the downside. The market share in the SOXX index, which tracks semiconductors has massive market share and holds strong influence over the larger QQQ, which tracks the top 100 tech stocks.

At the present time, I believe that SOXX is going to begin consolidating and possibly moving back up over the near term. Fundamentally, nothing has changed and I’m expecting upcoming earnings season to improve sentiment in oveall tech and cause price to swing higher once again.

 

Expect consolidation and sideways action to begin, till we begin seeing fund activity move into the tech sector once again. RSI is now in the 30’s level, which tells me that that downside is limited in the near term.

I will update you tomorrow as usual.

Roger Scott