Intraday Market Update
Equities are drifting lower once again as we head into a well deserved three day holiday weekend in observance of Independence Day. US equity markets will be closed on Monday which is keeping traders on their toes after more disappointing economic news. The jobs report was mixed but a much larger than expected drop in May factory orders has the bulls on the run. Most of the major indexes are off about -0.50% and are in the bottom of their daily range, erasing a large portion of yesterday afternoon's gains. If the S&P 500 closes in the red today, it will make 9 of the past 10 sessions to do so. Most international markets were modestly higher on Friday. The question of the day is do traders want to be long or short heading into the long weekend. The answer is neither as most of Wall Street has already packed their bags and headed for the beach. Volume is extremely light so I wouldn't expect any fireworks until Monday as traders digest the death cross happening today on the daily chart of the S&P 500 where the 50-day SMA is crossing below the 200-day SMA, a very bearish technical pattern.
I wanted to take a few minutes to discuss the big picture of the broader market as measured by the S&P 500. Please observe the weekly chart of the SPX below.
On Thursday, the SPX printed a bottoming tail daily candlestick at the 38.2% Fibonacci Retracement measured from the March 2009 lows to the April 2010 highs. Thursday's lows of 1,010 also corresponds to the 11/08 highs (see ovals on the chart) and the 100-week SMA (see green SMA). Will all of this be enough to produce a bounce in the market? Probably, but the bounce should be stopped in its tracks if it approaches the 1,040 to 1,060 area. The fact is we may consolidate between 1,010 and 1,050 for a couple of weeks before we get a larger move down. More reliable support is down near 940 and 880 which corresponds to the late 2008 and May to July 2009 congestion area as highlighted on chart with the grey rectangle. Interestingly this congestion area is right smack in the middle of the 50% and 61.8% Fibonacci Retracement level and the backside of the broken trend line drawn from the 10/07 highs to the 5/08 highs. My outlook is to expect choppy trading with a bias to the short side. I will continue to pick good entries into short trade set-ups with the expectation of an ensuing drop in the SPX.
Expectations were low but the non-farm payrolls report was still disappointing. This appears to have been already priced into the equity market as evidenced by 5 straight days of selling this week which saw the S&P 500 reach a high of 1,082 on Monday and a low of 1,010 on Thursday. The employment numbers do not tell a positive story about the US economic recovery. The headline number showed a loss of -125,000 jobs which was driven by the elimination 225,000 temporary census workers. The attention has been on the recently added private payrolls component which saw +83,000 jobs added. This is an improvement over May which saw a rise of +33,000. On a positive note this marks the sixth straight month of growth in private payrolls. The unemployment rate also came in better than expected and dropped to 9.5% from 9.7%, compared to estimates of 9.8%. Although the drop can be explained by the departure of more discouraged workers from the labor pool. The average work week shortened and hourly earnings also declined.
Factory orders in May fell -1.4% (m/m) compared to estimates calling for a decrease of -0.5%. This snaps an 8 month winning streak and April's increase was revised lower from a +1.2% to +1.0%. Non-defense capital goods ex-aircraft, considered a good proxy for business spending, jumped +3.9% following a drop of -2.8% that was seen in April.
During the recession businesses and consumers pulled back sharply and the initial recovery we've seen over the past year was obviously a snap back in demand that corrected imbalances from the financial crises in 2008. However, now the sustainability of the recent growth is uncertain at best as highlighted by the flurry of bad economic data over the past several weeks. Add in the European debt contagion and the recent surge in volatility seen in markets throughout the world, and this recovery is clearly in trouble. Companies are likely waiting to hire new workers only when necessary instead of hiring them ahead of expectations. And there are geopolitical indifferences throughout the world which is only adding to difficult circumstances.
I will leave you with all of us at Option Investor wishing you a safe, enjoyable, and well deserved 4th of July holiday weekend. And we look forward to catching up with you tomorrow and on Tuesday. Be safe!
Core Sector List:
Overall reading: 3 sectors advancing, 13 sectors declining
Strongest Sectors: Biotechnology, Software, Healthcare
Weakest Sectors: Transportation, Home Construction, Banks
S&P 500 - Daily and 30-minute Intraday Charts:
Dow Jones - Daily and 30-minute Intraday Charts:
NASDAQ - Daily and 30-minute Intraday Charts:
Russell 2000 - Daily and 30-minute Intraday Charts: