On Monday, stocks started low and slow, and ended just as they began — with the major indices in decline. Volume was light, and the market’s focus was primarily defensive, even though positive economic news was reported prior to the opening.
The economic reports were no blockbusters, but they did show that the economy is in a modest recovery. Real disposable income for May increased 0.5%, and the personal savings rate increased to 4% from 3.8% in April.
Even two decisions by the Supreme Court that should have had a positive effect on business had little impact on the broad market. The Court struck down provisions that created a private regulatory body to inspect and discipline public company accountants. The justices also “rejected an appeal by the government which sought to revive a rejected attempt to get tobacco companies to forfeit up to $280 billion in profits and pay $10 billion for smoking-cessation programs” (Wall Street Journal).
Telecom and consumer staples stocks, both defensive sectors, were strong. Telecom rose 1%, and consumer staples gained 1.1%. Sprint Nextel Corporation (NYSE: S) gained 6.2%, MetroPCS Communications, Inc. (NYSE: PCS) rose 0.8%, and AT&T Inc. (NYSE: T) was up 0.7%.
The U.S. dollar gained at the expense of the euro, which fell 0.8%. Treasuries were higher with the benchmark 10-year note, up 25 basis points with a yield of 3.01% — a new 52-week low.
At the close, the Dow Jones Industrial Average fell 5 points to 10,129, the S&P 500 was off 2 points to 1,075, and the Nasdaq lost 3 points to 2,221.
The NYSE traded 925 million shares with decliners ahead of advancers by about 9-to-7. The Nasdaq crossed 518 million shares with decliners ahead by 4-to-3.
Crude oil for August delivery fell 61 cents to $78.25 a barrel as the first tropical storm of the season appeared to have lost its punch. The Energy Select Sector SPDR (NYSE: XLE) closed at $51.78, off 71 cents.
August gold fell $17.60 to $1,238.60 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) fell 2.01 points to 183.11.
What the Markets Are Saying
Despite good economic data and two supporting Supreme Court decisions, the stock market sputtered like a defective July 4th fireworks rocket. Only two sectors showed strength yesterday, and both are considered defensive, so the broad market gave another negative signal telling investors that no matter how good the news, buyers are not interested in stepping up.
Yesterday was the sixth day down since the high of June 21, if we count Friday as a minus day. As Q2 grinds to a close, the quarter has produced the following results: The S&P 500 has fallen 8.11%, the Dow is down 6.6%, and the Nasdaq has fallen 7.4%. And Dorsey Wright & Associates reports that only two of their ETF sectors will close the quarter with gains — precious metals and gaming.
Despite the quarterly losses, our internal indicators are not oversold. Moving Average Convergence/Divergence (MACD) is neutral and on the edge of a sell signal, the slow stochastic is neutral having flashed a sell on June 21, momentum turned negative on Friday, and Relative Strength Index (RSI) is neutral.
As we approach the Q2 earnings season, investors are not confident that the results will match expectations. This could be good as long as the earnings exceed estimates.
However, if the results are as bad as investors are anticipating, then the charts of the major indices could be forming massive head-and-shoulders patterns. Here the key word is “could,” since the trigger of the head-and-shoulders would be the decisive penetration of the neckline, which is now at S&P 1,040 to 1,045.
But don’t attempt to anticipate this most graphic of all chart formations by selling now. The chances are better than even that the support line will hold, but if it doesn’t, we will be strong sellers.
Today’s Trading Landscape
Earnings to be reported after the close include: EXFO, General Mills, Sealy and Worthington.
Economic reports due: ICSC-Goldman Sachs store sales, Redbook, S&P Case-Shiller Home Price Index (HPI), consumer confidence (the consensus expects 63.3), State Street Investor Confidence Index and farm prices.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
