Exercise Caution as We Enter June

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Stocks sagged Friday in sluggish trading even though Greece’s finance minister said that the country will make its next debt payment on June 5. Despite a closing rally, buying wasn’t enough to make up for the early losses, and the major indices all declined about 0.6%.

Volume on the New York Stock Exchange hit over 1 billion shares. Much of that had to do with repositioning of institutional portfolios. However, May had the lowest average daily volume this year.

All 10 S&P sectors turned in losses with industrials, financials and technology leading the way lower. The energy sector was the top performer, down 0.1%, reflecting a 4.5% jump in crude oil to $60.26 a barrel.

Weak economic data put additional pressure on stocks. The Chicago PMI, a survey of Chicago-area purchasing managers, showed a decline in April below 50, indicating that factory activity is contracting. Consumer sentiment for May was higher than expected, but still down sharply from April. And Q1 GDP was revised down to -0.7% from +0.2% previously.

At Friday’s close, the Dow Jones Industrial Average fell 115 points to 18,011, the S&P 500 was off 13 points at 2,107, the Nasdaq fell 28 points to 5,070, and the Russell 2000 was off 7 points at 1,247.

The NYSE’s primary exchange traded 1.2 billion shares with total volume of 3.8 billion shares. The Nasdaq crossed 1.9 billion shares. On the Big Board, decliners outpaced advancers by 2.1-to-1, and on the Nasdaq, decliners led by 1.6-to-1.

For the week, the Dow fell 1.2%, the S&P 500 was off 0.9%, the Nasdaq fell 0.4%, and the Russell 2000 lost 0.5%.

S&P 500 Chart
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Despite traders’ description of the current market as “sluggish” or “lacking enthusiasm,” the S&P 500’s monthly reading versus a 17-month simple moving average shows an increase in premium of 0.3% over April.

This indicates that even though traders have had a difficult time maneuvering in a narrow trading band, buyers are still in control and even increased their on-balance buying despite the negative headlines.

My analysis also indicates that a 6% premium is not large compared to the tops of more than 8% in 2000 and 2007, just before the beginning of bear markets.

SPY Chart
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Chart Key

The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has held above its 50-day moving average, but note that although volume has been mixed, it has a downside bias.

Currently, prices are trading in a very narrow range following what appears to be a false breakout. It is “false” because of the lack of upside volume on the break and the subsequent increase in downside volume following the break to a new high.

Conclusion

We are entering what is traditionally a negative period of the year for stocks with June being one of the worst months with the Dow Jones Industrial Average down in 8 of the past 10 years.

“Sell in May and go away” has worked since 1950 with the top-performing months being November through April, according to the Stock Trader’s Almanac 2015. The figures are impressive: Compounding a $10,000 investment, the strategy yields a gain of $816,894 versus a loss of $687 for the May-to-October period.

The strategy is not foolproof. Fourteen years were down versus 50 up, but that is still a great track record. And when entering a period with so many negatives, including an interest rate increase that could come as early as September, I would advise a very cautious approach to investing for the near future.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2015/06/daily-market-outlook-exercise-caution-in-june/.

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