Stocks closed out July with little in the way of direction on Friday. The S&P 500 was down 0.2%, but up 2% for the month. The Nasdaq was flat on Friday and ended the month with a gain of 2.8%.
The energy sector was weak again, falling 2.2% on Friday and down 7.7% in July. This was the result of a 2.9% decline in crude oil futures to $47.12 a barrel. Chevron Corporation (CVX) and Exxon Mobil Corporation (XOM) fell 4.9% and 4.5%, respectively. These two stocks had a negative 56-point impact on the Dow Jones Industrial Average.
But other sectors held back the impact of a decline in energy. This strength resulted from a Labor Department report showing that Q2 wage growth was the lowest since 1982 when records first began. This fueled speculation that the Federal Reserve may be reluctant to raise interest rates until wage growth turns higher. Thus, a rate hike could be delayed until next year.
Biotech stocks continued to be the focus of buyers. The iShares NASDAQ Biotechnology Index (ETF) (IBB) gained 1% after Amgen, Inc. (AMGN) surpassed analysts’ estimates and management raised its guidance for the year, with the stock jumping 2.9%.
Coca-Cola Enterprises Inc (CCE) spiked 12.4% following merger talks. Universal Health Services, Inc. (UHS) rose after reporting better-than-expected earnings.
Gold futures for December delivery increased 0.6% to $1,095.10 an ounce. However, gold posted its worst month in more than two years.
The U.S. dollar fell 0.5% against a basket of currencies, and the euro was quoted at $1.0981 in late trading.
At Friday’s close, the Dow fell 56 points to 17,690, the S&P 500 was down 5 points at 2,104, the Nasdaq fell a half point to 5,128, and the Russell 2000 rose 7 points to 1,239.
The NYSE’s primary exchange traded 977 million shares with total volume of 3.6 billion. The Nasdaq crossed 1.9 billion shares. On the Big Board, advancers outpaced decliners by 1.7-to-1, and on the Nasdaq, advancers led by 1.3-to-1.
For the week, the Dow rose 0.7%, the S&P 500 gained 1.2%, the Nasdaq advanced 0.8%, and the Russell 2000 was up 1.1%.
Despite what appeared to be a tedious month for stocks, our 17-month S&P 500 moving average chart is still bullish. The premium of price over the moving average increased from 3.2% to 4.6% this month. This was because June’s performance, down 2.1%, was worse than July’s, up 2%.
I’ve switched from charting the S&P 500 index to charting the SPDR S&P 500 ETF Trust (SPY) since investors are able to own the ETF and volume figures are readily available for the daily and weekly tallies. For our purposes, there is virtually no difference between the two.
The monthly chart is still in a strong bull market, so investors should continue to hold their long-term positions.
The Dow’s double-top in March (18,289) and May (18,312) dominates the chart. Traders will note the channel down with considerable resistance at the 200-day moving average at 17,775 to the 50-day moving average at 17,895.
Friday’s high was capped by a failure to hold the high of the day at 17,784. Support rests at about 17,400, just above last week’s low.
This 60-minute chart of the Nasdaq for July shows a clear trading zone from the top of an open gap at about 5,036 to the bottom of a closed gap near the June high at 5,164. That zone is now under pressure, but a short-covering rally could take out the June high in a nanosecond. Short sellers should place stop-loss orders just above the June high.
Conclusion
The sizzling month of August is historically not sizzling for stocks. In fact, according to the Stock Trader’s Almanac, since 1987, August is the worst month for all three major indices.
Perhaps that is why short interest (shares borrowed to make short sales) is at the highest level in more than two-and-half years. But high short interest can result in a short squeeze, which is a rally forcing short sellers to buy back their shares, resulting in an otherwise unwarranted rally.
Our charts provide traders with the areas of support and resistance that could help them increase the probability of gains and limit losses.
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.
