The new month of July and Q3 opened on a down note, with both Goldman Sachs (NYSE:GS) and UBS (NYSE:UBS) cutting their year-end targets for the S&P 500. UBS cut 100 points to 1,375 and Goldman cut its to 1,250. The downgrades were made following a disappointing ISM index reading that showed U.S. factory orders shrank for the first time since July 2009.
However, yesterday’s bad news was interpreted favorably: Traders commented on the likelihood of the Fed ramping up more stimulus with lower interest rates. (Lower than zero?) And so at the close, the Dow Jones Industrial Average fell just 9 points to 12,871, the S&P 500 gained 3 points, closing at 1,366, and the Nasdaq rose 16 to 2,951. The NYSE traded 734 million shares and the Nasdaq crossed 477 million. Advancers led decliners on the Big Board by 2.3-to-1 and on the Nasdaq by 1.7-to-1.
Despite one piece of bad news following another, the major indices saw little net change and the Dow Jones had an only slightly negative day. The morning was volatile, with the Dow opening higher but falling more than 100 points following the ISM report. The remainder of the day was spent regaining lost ground.
By the close, the Dow had closed above its 20-day moving average (green line) and its 50-day MA at 12,697, which now functions as important support along with the support line at 12,716 just above it. Resistance rests at 13,000. The stochastic issued a buy signal last week, but Friday’s pop took that indicator’s fast line close to overbought at 80.
Finally, I post the long-term chart of the S&P 500 with its 17-month moving average as of the last day of each month. This very simple but highly visual chart has accurately signaled changes in trend. When the black monthly line crosses through the red 17-month moving average, it produces a signal. In May, the black line came very close to penetrating the red moving average. But June’s spectacular performance reversed the black price line, sending it to safer long-term bullish territory.
Conclusion: The S&P 500 closed several points higher yesterday, which slightly penetrates the June high of 1,354. But it, the Dow and the Nasdaq still are range-bound, and with just a half-day of trading today and Independence Day tomorrow, it is unlikely that anything of great technical importance will occur this week. Nevertheless, it is only the short term and intermediate terms that are in doubt since the long-term trend still is up. Our reliable S&P 17-month moving average — as well as myriad other theories — confirm that the bull market is intact.
But it looks like it’s going to be a long, hot summer.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.