Hello [MM_Member_Data name=’firstName’],
Prices are mixed ahead of a series of political and economic events due tomorrow, including former U.S. Federal Bureau of Investigation Director James Comey’s public testimony, the U.K. parliamentary election and the European Central Bank’s policy meeting.
U.S. Economy – Purchase applications for home mortgages rose a seasonally adjusted 10 percent to the highest level since May 2010 in the June 2 week, a sharp increase that follows 3 weeks of declines.
Results were heavily adjusted to account for the Memorial Day holiday, however, and the unadjusted purchase index fell 14 percent from the prior week, though the year-on-year gain fell only 1 percentage point to a still strong 6 percent.
The refinance index rose by a more moderate 3 percent in the week, taking the refinance share of mortgage activity down 1.1 percentage points to 42.1 percent. The average interest rate on 30-year fixed-rate conforming mortgages ($424,000 or less) fell 3 basis points to 4.14 percent, the lowest rate since November 2016.
The healthy 6 percent year-on-year increase in purchase applications for home mortgages indicates that the robust housing market of the first quarter is probably still alive despite other recently released but older period data showing weakness, such as last week’s release of pending home sales for April, which were down for a second straight month and 3.3 percent below last year’s level.
Market Sentiment – The Federal Open Market Committee is widely expected to raise interest rates at its June 14 meeting. The probability of a rate hike is 93%, which compares to 91% yesterday.
Technically, I’m expecting more congestion and consolidation in the long bond in the near term. RSI remains overbought and the odds of seeing strong directional bias ahead of the FED continues to decline.
Institutional traders don’t like to make big bets ahead of important FED meetings and unless there’s a major Geo-political uncertainty developing in the next few days, I’m not looking for upside volatility to develop in the near term.
Market Analysis – U.S. stocks are mixed, led by gains in banks. Energy companies were down the most as crude oil prices headed lower. Bond yields were moving higher a day after sliding to the lowest level since November.
Investors were sizing up the latest company earnings and looking ahead to former FBI Director James Comey’s congressional testimony Thursday as part of the investigation into Russia’s possible election meddling.
Technically, I’m looking for slight weakness to move into the semiconductor sector which is extremely overbought and diverging from the RSI oscillator in the medium term time frame. The odds are strong that chips will begin declining over the next few sessions or lose upwards bias we’ve been seeing.
The reason why I’m focused on the chip sector is because of it’s strong impact on the the rest of the NASDAQ, which in turn has major impact on the SP 500, which is already showing major vulnerability at this time due to major blue chip sectors lagging behind the overall stock market.
Next few days expect range bound conditions and potential downside to dominate the market, since Comey’s testimony may have substantial impact in the short term. Economic data is big tomorrow with employment data, which will impact bonds.
Don’t expect major upside till stocks experience side ways or corrective pressure in the short term.
Existing / New Position Update
SYMC is flat with the rest of the market.
Keep order working on AAPL
Next few days I’m anticipating downside volatility to pick up or more congestion, which will lower long term momentum levels and bring more tech stocks closer to 50 day line. Patience is key while we wait for top stocks to begin seeing minor downside pressure.
I will update you tomorrow as usual.
All the best,
Roger Scott