Welcome to a fresh month, the eighth month of the year: snoozy ol’ August.
To be clear, when I say “snoozy,” I don’t mean uneventful, but rather “choppy in wide ranges, on lower volume.”
Before analyzing yesterday’s dump into the close, here are the (rough) numbers for the month of July:
S&P 500: +5%
Russell 2000: +7%
In other words, the bulls remained large and in charge, while the bears were forced to endure yet another month of torture. Yes, to have six up-months out of seven seems silly, and to expect another as we slide into August seems almost greedy … but that’s what traders have to deal with.
Yesterday’s morning missile was titled “The Best Thing to Do Today Is Probably Nothing,” and for those only looking at daily closes on the charts, that may well have been the best course of action. Dig a mere inch below the surface, however, and we find bearish candles/closes on most major stock indices and sectors.
Just as the S&P 500 sneaked up on the 1700 mark, algorithms put the gears in reverse in the last hour of trading and took down the index more than 10 points, or 0.7%, into the close for a marginal overall decline. On the daily chart below, note that the result of this was a bearish candle called a “shooting star,” which is denoted by the long tail above its small body.
The way to understand all of this is to realize that the bulls desperately tried to push the S&P 500 above the 1700 mark, but failed to do so and let the quick bears take over for an hour.
Also, note the negative divergence we are now seeing on the S&P 500 between price (higher) and momentum, as represented by the MACD (lower).
Remember, it’s still a big week ahead, with today’s European Central Bank and Bank of England interest-rate announcements and Friday’s July jobs report looming large. However, Wednesday’s close in U.S. equities on the back of an FOMC announcement raises a second red flag, and I have thus further tightened my long exposure in the portfolio (i.e., sold more long positions).
Yesterday’s underperformers were the utilities and the telecommunications stocks. The latter group — represented by the iShares U.S. Telecommunications ETF (IYZ) on the chart below — slid 0.64% on the day and stopped just short of falling into its large up-gap from July 15.
Given the price action of recent days, the telecom group could well accelerate this slide and move toward the $27 level for a close of said gap.
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.