This Market at a Glance originally appeared in an Investor Alert on StockTradesAlmanac.com.
Psychological: Complacent. Investors Intelligence Advisors Sentiment survey has reported over 50% bulls every week since February 25. Bearish Advisors % exceeded 20 in just three of those weeks (in late April). Up until today, VIX had also spent a nearly as s brisk losses may unwind some of the excessively bullish sentiment, particularly if there is no sympathy rally. Tomorrow is the first trading day of August, but as a first trading day of the month, it ranks in the bottom third.
Mixed. In spite of today’s market action, corporations and the stock
market are still doing exceptionally well. U.S. Q2 GDP rebounded strongly to a 4% annualized rate from a 2.1% annualized contraction in the first quarter. The labor market is continuing to improve with the headline unemployment rate now at 6.1%, but many of the job gains continue to come in the form of low-wage and part-time. Housing is also showing signs of weakness again. New home sales and housing starts were weaker, existing home sales have held up though.
Technical: Breaking down. DJIA, S&P 500 and NASDAQ all ran into resistance in July. Russell 2000 was first to break in early July and has already sank well below support at its 50- and 200-day moving averages. DJIA, S&P 500 and NASDAQ have all broken down through their respective 50-day moving averages today. Stochastic, MACD and relative strength indicators are all negative and trending lower. Key support levels are respective index lows set in mid-April through mid-May. A break below those levels could send the indices back towards early February lows.
Monetary: 0-0.25%. The Fed once again did exactly what was expected at their most recent meeting. They cut monthly bond purchases by another $10 billion. They are still injecting $25 billion of new money monthly and are continuing to reinvest interest and principle from their existing holdings. Should the Fed be satisfied with the economy’s actual
progress and their future expectations remain solid, QE’s end will likely come at the Fed’s next meeting in September. Focus on when QE would end has already shifted to when the Fed will actually begin to normalize (increase) rates. 30-Day Fed Funds futures suggest rates could rise early in the second quarter of 2015.
Seasonal: Bearish. August is the worst DJIA and S&P 500 month since 1987 with average declines of 1.3% and 1.0% respectively. August also
ranks last for NASDAQ (–0.3%) and Russell 2000 (–0.7%) over the same time period. In midterm years since 1950, Augusts’ rankings improve slightly: #10 DJIA, #9 S&P 500, #12 NASDAQ (since 1974), #8 Russell 1000 and #11 Russell 2000 (since 1982). Average losses range from 0.6% for Russell 1000 to 2.8% for Russell 2000.
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