Following better-than-expected earnings from General Mills (GIS) and strong buying in Europe, the stock market opened higher yesterday, and within an hour the Dow Jones Industrial Average (DJI) was ahead by 140 points.
Then, at 10 a.m., the Institute for Supply Management said that its index of manufacturing jumped to 44.8 in June from 42.8 in May and pending home sales increased 0.1%.
But that was the extent of the positive news and the buying for the day. The rest of the session turned into a gradual sag until just before the close when selling picked up and the market closed on a down note.
The financial sector was the worst performer, down 0.5%, and energy stocks struggled, too, against falling oil prices. But pre-holiday volume was very light and, in the absence of an increase in volume, the early gains were either easily wiped out or reduced.
At the close, the Dow was up 57 points to 8,504, the S&P 500 (SPX) gained 4 points to 923, and the Nasdaq (NASD) gained 11 points to 1,846.
The NYSE traded just 877 million shares, with advancers ahead of decliners by 3-to-1. On the Nasdaq, 611 million shares traded, with advancers ahead by 2-to-1.
August crude oil fell $1.60 to $69.89 a barrel on data that showed crude inventories rising and gasoline stockpiles increasing. The Energy Select Sector SPDR (XLE) gained 4 cents and closed at $48.09.
August gold gained $13.90, closing at $941.30 an ounce, and the PHLX Gold/Silver Index (XAU) gained $5.31 to $144.33.
What the Markets Are Saying
Yesterday the S&P 500 and Nasdaq both failed to hold above the top of their current trading zones. For the S&P 500 that number was 930, and for Nasdaq it was 1,854.
The failure of the “500” to hold above 930 would not normally be all that significant — especially considering the shortened holiday week and extremely low volume. But the Nasdaq’s stumble at exactly the same spot, adjusted for price, may be significant since it has been leading the other major indices for almost a month.
The bulls have to be shaken by yesterday’s trading pattern: Following a strong opening, both indices retreated under gradual pressure throughout the day until just before the close. During the last half hour selling accelerated — an indication of weakening demand at the top of the current trading zone.
But so far the bulls have succeeded in holding off any heavy liquidating, and with such puny volume, it is very difficult to determine whether the bulls or the bears will lead the market in the near future.
For now it is best to wait this out and let the market tell us the direction of the next move. But, remember the bull is still the long-term animal of choice and any dramatic pullbacks are viewed as buying opportunities.
Today’s Trading Landscape
Earnings to be reported include: Acuity Brands (AYI), Methode Electronics (MEI), MSC Industrial Direct (MSM) and MSCI (MXB).
Economic reports due: June 27 weekly jobless claims (the consensus expects 619,000), June non-farm payrolls (the consensus expects -350,000), June unemployment rate (the consensus expects 9.6%), June 20 DJ-BTMU U.S. Business Barometer, May factory orders (the consensus expects +1.2%), June 19 EIA natural gas inventories, and June 22 money supply.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of his most recent market outlooks.
