Market at a glance

August 29, 2014 7:21 AM

This Market at a Glance originally appeared in an Investor Alert on StockTradesAlmanac.com.

Psychological: Complacent. Following a brief two-week dip, Investors Intelligence Advisors Sentiment survey is once again reporting bulls above 50%. After a few days above 15 in late-July and early-August, VIX fell back below 12 (until today). Both data points suggest traders and investors are either fully invested or quite close to it, possibly leaving little available cash for further purchases. However, this does not mean the rally is over, it only suggests that the pace of gains is likely to moderate. Absent an exogenous event driven shock, traders and investors could remain comfortably bullish for long periods of time.

Fundamental: Solid. It is all in the data. Economic reports may not be perfect and many are seasonally adjusted and then adjusted again, but U.S. GDP was 4.2% last quarter. The unemployment rate is 6.2%, down from double digits. The housing market is taking a bit of a breather, but was double-digit year-over-year gains really sustainable indefinitely? And corporate earnings are certainly solid with stock markets at or near new highs. Yes, numerous areas still need improvement. There always will be some weak or disappointing detail in the data, but broadly speaking the fundamental picture in the U.S. is rather firm.

Technical: Consolidating. After blasting through resistance last week and marching to new highs earlier this week, DJIA, S&P 500 and NASDAQ are taking a breather. All three are above their respective 50- and 200-day moving averages, but their rapid ascent has stretched Stochastic, relative strength and MACD indicators. Provided DJIA can hang out around 17000, S&P 500 around 2000 and NASDAQ around 4550 for a few trading sessions, the lows from early August are likely to hold for the rest of the year.

Monetary: 0-0.25%. Sufficient economic data exists to support a rise in the Fed funds target rate. Many areas of the labor market are solid (underemployment and participation rate excluded), inflation is running around 2%, overall economic activity, based on GDP, is solid and stock markets are making new all-time highs. However, many Fed members still appear reluctant to trim monetary support. Here’s hoping this isn’t the Fed’s next big monetary policy blunder.

Seasonal: Bearish. Since 1950, September is the worst performing month of the year for DJIA, S&P 500, NASDAQ (since 1971) and Russell 1000 (since 1979). Although September’s overall rank improves modestly in midterm years going back to 1950, average losses widen for DJIA (–1.0%), NASDAQ (–0.7%) and Russell 1000 (–1.0%). S&P 500’s average September loss improves slightly from –0.5% to –0.3% in midterm years.

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