Better-than-expected exports for China and a jobless claims report that was lower than expected resulted in a higher opening. But the major indices failed to hold at the morning’s high and plunged to the session’s low by 10 a.m. EDT.
The remainder of the day was spent recovering from the early round of selling, and by the close stocks had barely avoided the first four consecutive down days for the year.
At the close the Dow Jones Industrial Average was up 28 points to 15,498, the S&P 500 rose 7 points to 1697, and Nasdaq gained 15 to close at 3669. The NYSE traded 629 million shares and Nasdaq crossed 361 million. Advancers exceeded decliners by more than 2-to-1 on the Big Board, and on Nasdaq advancers were ahead by 1.4-to-1.
The rally in gold — as tracked by the SPDR Gold (GLD) that began in early June appears to have lost its glimmer at its 50-day moving average. The 50-day also coincides with the metal’s intermediate downtrend line.
Note the new sell signal from MACD. Unless the 50-day moving average is convincingly pierced to the upside, I remain a bear on gold.
Yesterday’s advance in gold is explained by the dollar’s weakness vs. a basket of currencies (the PowerShares U.S. Dollar Bullish (UUP)). The yen/dollar relationship went against the buck yesterday due to reportedly better exports from China. But the dollar is trading at the bottom of a broad bull channel and thus is a bargain.
Conclusion: With volume at close to the lowest levels of the year, volatility could pick up. Nevertheless, the pullback has been tame as traders have been unwilling to jump on either side of the market.
Our internal indicators — chiefly MACD, stochastic-slow, RSI and momentum — are weak. And the sentiment numbers — chiefly the AAII bullish sentiment percentage — increased to 39.5% from 35.62% on Aug. 1. The AAII number is a contrary indicator and thus somewhat bearish.
Traders’ impatience with the market’s inability to follow through from July’s gains could end the summer doldrums with a selloff. August’s historical patterns have frequently led to a correction. On May 13 I said that “the internal power of the bull leads me to believe that a target of 1700 by late June/early July is attainable.” That target has been reached, and it is time to cash in on the profits.
By the way, don’t be drawn in by China’s export numbers. The reports from Beijing are always subject to reinterpretation.