On Monday, stocks traded lower from the opening to the closing bell, snapping a six-session winning streak for the S&P 500. The selling was attributed to sluggish economic growth in Japan and a lower growth forecast for China. And trading was slow throughout the session, reminding investors that we are in the “dog days of summer.”
At Monday’s close, the Dow Jones Industrial Average was off 9 points at 13,169, the S&P 500 fell 2 points to 1,404, and the Nasdaq gained 2 points at 3,023. The NYSE traded 484 million shares and the Nasdaq crossed 328 million. Decliners outpaced advancers on the Big Board by 1.6-to-1 and on the Nasdaq by 1.3-to-1.
After months of inching its way upward, the S&P 500 finally broke above the bull channel that has marked its advance. But five sessions have each ended at the 1,400 to 1,406 mark, the same area that closely matches the May top.
And as it dawdles in this narrow range, its underlying internal indicators (MACD, stochastic and momentum) are sinking. Note the downward hook on the stochastic.
The market is quickly running out of time since a turn down from the May 1 high at 1,406 will, along with the March high at 1,419, form a triple-top with the probability of a sudden plunge to its 50-day moving average at about 1,350.
The flip side of the technical coin may be readily seen on the chart of the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP). The U.S. dollar is in a long-term uptrend, trading within a clearly defined bull channel. Note the secondary support at just under $22.60 and the stochastic buy signal.
The buck appears to be telling us thatEurope’s procrastination to get its house in order is taking a toll. Mario Draghi’s infamous late-July promise to announce “a set of unconventional measures to preserve the euro” and to do “whatever it takes” to keep interest rates low seems more like the usual delaying tactic that indicates a lack of agreement among European leaders.
Conclusion: We have been stuck in a very tight trading range for over a week. Plans to prop up the euro are flagging, and with it, the dollar is gaining strength. Q2 earnings are now practically out of the way, and so the focus again turns to across the pond. Prepare to take a more aggressive bearish stance since time is running out for the European Central Bank.
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.