At the closing bell on Tuesday, stocks were slightly lower to unchanged. However, weakness in the airline sector drove the Dow Jones Transportation Average down 0.3%. It is now off 9.9% from its Dec. 29 closing high.
Southwest Airlines Co (NYSE:LUV) dropped 4.2% on a disappointing outlook. Delta Air Lines, Inc. (NYSE:DAL) fell 0.1%, but American Airlines Group Inc (NASDAQ:AAL) jumped 1.2% following an announcement that it would add flights to Australia.
The worst-performing sector was telecom services, off 0.5%. Of the seven declining sectors, none dropped more than 0.2%, reflecting traditionally low summer volatility and volume. However, homebuilders lost ground with the iShares Dow Jones US Home Const. (ETF) (NYSEARCA:ITB) off 0.3%.
The 10-year Treasury note continued to decline, with its yield rising to 2.42%. The euro fell to 1.13 against the dollar. Crude oil for July delivery rose 3.4%, closing at $60.14 a barrel. Gold for August delivery rose 0.5% to $1,179.40 an ounce.
At Tuesday’s close, the Dow Jones Industrial Average was off 3 points at 17,764, the S&P 500 closed up 1 point at 2,080, the Nasdaq lost 8 points at 5,014, and the Russell 2000 was down 4 points at 1,250.
The NYSE’s total volume was just 3 billion shares, and the Nasdaq crossed 1.8 billion shares. On the Big Board, decliners outpaced advancers by 1.8-to-1, and on the Nasdaq, decliners led by 1.5-to-1.
As the Fed considers raising interest rates, the bond market has already factored in a sharp increase. Bond liquidations continue to drive rates higher. The yield on the benchmark 10-year Treasury note hit an intraday high of 2.45%.
The near-term support line of the S&P 500 was briefly violated on Tuesday. However, a rally in the last 30 minutes of trading placed the index in positive territory and triggered a minor buy signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR). MACD posted a sell signal and is now somewhat oversold.
Conclusion
Bonds continue to be pressured and the 10-year’s yield hit an eight-month high. The proceeds from bond sales have to go somewhere, and my guess is that they are going into cash, waiting for stocks to become more attractive.
However, even though most major indices declined Tuesday, there is no indication of a washout of equities. And the S&P 500 even recovered from Monday’s selling, closing above its near-term trendline.
Volume has been decreasing as stocks fall, which is a positive. Thus, even though a close under the support at S&P 500 2,080 would more than likely trigger a minor pullback to the March low at 2,040, just under the 200-day moving average at 2,046, the long-term trend would still be up.
The near term looks more and more like the summer doldrums are upon us. Selling bonds for cash is just as much an investment decision as positioning an equity portfolio. Hold some of your cash to buy into a decline since the bull is still alive, though resting from the summer heat.
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.
