Market Outlook Thursday August 1st

Welcome to a fresh month, the eight month of the year, also known as snoozy August.  To be clear, when I say ‘snoozy’ in this case I don’t mean uneventful, but rather ‘choppy in wide ranges, on lower volume.’

Before analyzing yesterday’s dump in to the close, here are the numbers for the month of July:

S&P 500, up roughly 5.00%

Russell 2000, up close to 7.00%

Nasdaq 100, up  6.50%

In other words, the bulls remained large and in charge, while the bears were forced to endure yet another month of torture.  Yes, to have six up-months out of seven, just as we slide into August seems silly and greedy, but those are the facts traders have to deal with.

Yesterday’s morning missile was titled ‘The best Thing to do Today is Probably Nothing,’ and for those only looking at daily closes on the charts, that may well have been the best course of action.  Dig a mere inch below the surface however and we find bearish candles/closes on most major stock indices and sectors.

Just as the S&P 500 snuck up on the 1’700 mark, algorithms put the gears in reverse in the last hour of trading and took down the index more than ten points, or 0.70% into the close.  On the daily chart below note that the result of this was a bearish candle called a shooting star, which is denoted by the long tail above its small  body.  The way to understand all of this is to realize that the bulls desperately tried to push the S&P 500 above the 1’700 mark but failed to do so and let the quick bears take over for an hour, for now.  Also, note the negative divergence we are now also seeing on the S&P 500 between price (higher) and momentum – MACD (lower).

Remember, it’s still a big week ahead, with the ECB and BOE out with interest rate announcements today and Friday’s July jobs report looming large.  However, given today’s close in US equities on the back of an FOMC announcement I must raise a second red flag and thus have tightened my long exposure in the portfolio further, i.e. sold more long positions.

spxdaily

Yesterday’s under performers were the utilities and the telecommunications stocks.  The latter group, on the below chart represented by the iShares Telecommunications ETF (IYZ), slid 0.64% on the day and stopped just short of falling into its large up-gap from July 15th.  Given the price action of recent days the telco group could well accelerate this slide and move toward the $27 level for a close of said gap.

iyz telco stocks

 

 

 

 

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