Just over 5 points separated Monday’s close from Friday’s on the Dow industrials, and less than 2 points on the S&P 500 made the difference between a gain and a loss. Investors are exhibiting fear, which can result in paralysis at times when armed conflict appears to be the sole option. And so, as the Middle East boils, stocks cool.
Even a burst of positive economic data from the Empire State index of manufacturing activity, which rose to 19.3 in June versus an expected decline to 15, did little for stocks. Neither did a rise in industrial production to a seasonally adjusted to 0.6% in May, nor a 0.2% increase in capacity utilization to 79.1%.
One trader said that even though investors may be more willing to buy stocks backed by solid economic data, it doesn’t mean that it will show up in the day’s results. This is especially true when buying at the top of a 4.8% run on the S&P 500 this year.
There was some movement in stocks thanks to M&A activity. Covidien (COV) jumped 20% after the medical device maker announced it would be bought by Medtronic (MDT). And Level 3 Communications (LVLT) said that it would acquire rival TW Telecom (TWTC) for $5.7 billion in stock and cash, and TWTC jumped 7.3%.
The Federal Reserve meets this week, and most Fed watchers think it will continue to cut bond purchases by $10 billion a month to $35 billion. Some are even forecasting a small interest rate hike, although they are in the minority.
At Monday’s close, the Dow Jones Industrial Average rose 5 points to 16,781, the S&P 500 gained 2 points at 1,938, and the Nasdaq added 10 points at 4,321. The NYSE’s primary market traded 604 million shares with total volume of just 2.9 billion shares. The Nasdaq crossed 1.7 billion shares. Advancers and decliners were almost even on both major exchanges.
The chart of the NYSE Composite is still bullish with immediate support at a near-term trendline at 10,830. Below that line we find support at the April high of 10,675 and its intersection with an intermediate trendline at about the same number. The 20-day moving average is at 10,768, and the 50-day moving average is at 10,637. The only fly in the ointment is MACD, which is just barely bullish.
Conclusion: As one trader put it, “Summer volume, summer gains.” And that would describe Monday’s action were it not for a boiling Iraq. It is difficult to put money into a market that is halted by headlines from areas Americans died to hold only to see those gains in blood wiped away.
For now, I suggest staying on the sidelines unless something very special comes to your attention.
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.