Weekly Results:
S&P 500 879.13 -1.93%
DJIA 8,146.52 -1.62%
NASDAQ 1,756.03 -2.25%
Russell 2000 480.98 -3.26%
MSCI Emerging Markets 31.11 -3.10%
Light volume and slight increase in volatility resulted in a negative close for broad indices. Clearly, the appetite for riskier assets is taking a pause. Now, optimists are forced to rethink overall positions. Commodities are pulling back at a faster pace with Crude down 10% last week. Similarly, Gold, Oil and Steel related stocks led the downside move in equity markets. This indicates ongoing weakness in global trade and demand for commodities. On the other hand, few investment opportunities present themselves given oversold levels. Meanwhile, earnings season approaches and usually presents a game of expectations. Yet, in upcoming weeks, a skeptical crowd awaits for evidence of fundamental improvements. For example, credit related themes are vulnerable given increase in distressed commercial property and weak retail sales.
The first half of 2009 reminds us the lack of sustainability of an upside rally. Mostly, a period of restoration trends are undefined. In turn, this makes long-term investing a riskier bet. At this point, investors are responding with higher anxiety levels driven by weak economic numbers, unsettled regulatory climate and unclear political factors. Similarly, consumer sentiment data fell significantly. At this point, analysts are seeking a catalyst. At this junction, market attention is poised to shift towards stock specific results. That said, the key question remains, if risky assets can recover and lead for the rest of the year. Overall, key macro indicators are linked closely and signal a uniform message of market correction.
That said, speculators can place their bets especially with a high risk/reward ratio. Short-term technicals suggest that optimists can use current levels as an entry point. A contrarian view, points to buying aggressively since 76% of US stocks are trading below their 50 day moving averages. In upcoming weeks, one should distinguish short-term behaviors versus longer-term themes.
The ISM for the non-manufacturing sector reinforced that the economy is stabilizing following the 'sudden stop' that occurred in the fourth quarter of last year. The new orders index rose to a post-Lehman high and is probing expansionary territory, indicating companies are regaining some confidence in final demand. This is corroborated by the continuing rise in the employment component, which shows that businesses are slowing the pace of job cuts, despite June's disappointing payroll figures. BCA Research, July 8, 2009.
Levels:
S&P 500 [879.13] Index is down 8% since peaking on June 11. Sitting near 200 day moving average with next major support at 850.
Crude [$59.89] Sharp decline after reaching annual highs. Attempting to stabilize around $60.
Gold [$913] Continues to trade in a narrow range between $900-950. At this stage, trend remains undefined.
DXY – US Dollar [80.20] For several weeks, forming a sideway pattern. Lack of significant catalyst explains a narrow trading range near 80.
US 10 Year Treasury Yield [3.29%] Pulling back from recent peak of 4%. Setting up for a reversal with major support around 3.20%.
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The positions and strategies discussed on MarketTakers are offered for entertainment purposes only and are in no way intended to serve as personal investing advice. Readers should not make any investment decision without first conducting their own thorough due diligence. Readers should assume the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
