[MM_Member_Data name=’firstName’],
Amazon’s $13.4 billion deal for Whole Foods sent grocery stores, big retailers, and food makers and distributors plunging Friday. Energy companies rose while other stocks were little changed.
Global Economy – European stocks are up ahead of Sunday’s second round of elections in France that are expected to hand President Macron an overwhelming legislative majority.
Japanese stocks settled higher as strength in exporter companies led the overall market higher on improved earnings prospects for exporters after USD/JPY rose to a 2-week high when the BOJ left monetary policy unchanged.
As expected, the BOJ decided by a 7-2 vote to keep a negative interest rate of -0.1% to the balances in current accounts held by financial institutions at the central bank and the BOJ will continue to purchase Japanese government bonds so that 10-year JGB yields remain at around 0%.
The BOJ’s overall assessment of the economy remained unchanged from the last meeting, saying it was “turning toward a moderate expansion.”
The Chinese yuan fell to a 2-week low against the dollar after the PBOC injected a net 250 billion yuan through reverse-repurchase agreements the most in 5 months, as it boosts the supply of cash in the financial system to alleviate a cash squeeze caused by regulatory checks on banks.
As expected, the Bank of Russia cut its key interest rate by -25 bp to 9.00% from 9.25%.
U.S. Economy – Housing starts dropped 5.5% in May from the previous month to a seasonally adjusted annual rate of 1.092 million. The median estimate was 1.22 million.
Residential building permits, fell 4.9% to an annual pace of 1.168 million last month, which compares to expectations of 1.249 million. Economists had expected a 3.4% increase for starts and a .8% gain for permits.
Market Sentiment – Based on financial futures contracts, the probability that the Federal Open Market Committee will increase its fed funds rate at the December 13 meeting is 46%, which compares to 50% yesterday.
Technically, there’s not much data on the horizon to increase buying pressure above the current price level, especialy with the long term trend pointing lower.
Expect price gap to the upside to fill as bonds trade lower and decline form overbought price levels in the near term.
RSI remains above 70 and unless we see global uncertainty ahead, the odds of more accumulation at the current price level is unlikely.
Stock Market Analysis – Key blue chip sectors continue to lag behind the overall market at this time, which opens up increased vulnerability in NYSE and Dow Jones in the near term.
If more blue chip sectors begin trading lower in the medium term time frame, the overall marke will gravitate towards the 50 day line and that will limit the number of institutional traders entering the market.
More importantly, as more and more sectors become weaker, we are seeing Dow Jones increase in price value, which tells us that less sectors are causing upside to the broader market and that creates vulnerability in the coming days.
RSI is now in the mid 70’s and price is showing major divergence against the RSI oscillator, which confirms that price is getting a bit ahead of itself in the short term time period.
Expect more congestion in the near term and lack of directional bias as stocks look for catalyst to drive price higher in the near term. Earnings season doesn’t officially start for some time and the majority of economic data is priced into the market at this time.
Tech is already near the 50 day line and more downside in the tech sector will cause more pressure to overall stock market, which will drag the SP 500 and Dow Jones lower.
Without such corrective pressure, it will become increasingly difficult for stocks to generate sufficient momentum to trade higher over the next few months.
Unless we see institutions coming into tech over the next few days, the odds of seeing QQQ break below the 50 day line is probable, which would create more downside pressure for the broader market.
Keep your eye on VIX index since it gives us accurate assessement of fear in the market. At this time, fear level is hear historic lows and unless something unexpected develops, I’m not expecting too much increase in volatility or corrective pressure to the downside ahead…only minor corrective pressure.
I will update you tomorrow as usual.
Roger Scott
Head Trader
Market Geeks