Commentary: Paul Ebeling on Wall Street


FLASH: The longest Bull market in history has relied on low interest rates, and weakness in jobs. So, if everyone else is worried about stocks, capitalize on the fear and make a a lot of money as the market climes the wall of worry, fear is your friend, and you saw it in action again last week.

The US stock market finished lower last week on relatively low volume and volatility.

Perhaps it was the pre-conceived negative earnings expectations due to reports released before the results season started that fueled the lackluster price action.

Perhaps it was options expiration.

Uncertainty over the size of the expected Fed rate cut at the end of the month may have also been responsible for the quiet price action and weak performance, but…

Long standing rule, no trading 3 days prior or 3 days after options expiration Friday, there will always be a trade.

In the cash market last week

The benchmark S&P 500 Index settled at 2976.61, down 1.2%. For the year, the index is up 18.7%. The blue chip DJIA closed at 27154.20, down 0.7%. It’s up 16.4% in 2019. The tech-based NAS Com finished at 8146.49, down 1.2%. This year, it has gained 22.8%.

Entering the earnings season, analysts expected S&P 500 earnings to have fallen by around 3%, according to FactSet data. At the end of the week, more than 15% of the S&P 500 companies had reported. Of the companies, 79% have posted a better-than-expected profit, according to FactSet data.

So far, there have been no surprises. Most of the times when the bar is set so low, the results are likely to be in line or slightly better.

This week stocks could continue to sideways to lower this week with the price action driven by low volume as many of the major players begin moving to the sidelines ahead of the ECB policy meeting on 25 July and the Fed’s interest rate announcement on 31 July.

Expectations of a 50-bptsrate cut by the Fed will probably drop below 20% Monday. This is based on a Wall Street Journal report released Friday that said the Fed will cut rates by 25-bpts and cut rates later in the year as needed.

If there is volatility, then it will likely remain centered around whether the Fed cuts 25 or 50-bpts.

Some investors continue to say that the Fed must take the aggressive route because policymakers have to convince Wall Street that they are truly serious about providing the firepower needed to continue the current 10-year economic expansion.

Remember, it is your money so, your responsibility, pay attention.

The Bulls Vs The Bears

Once again, is a Wall Street adage: The market takes the stairs up and the elevator down. That is a way of saying that the market tends to drop faster than it rises.

As we saw last week, The Bulls are on the up escalator and The Bears are on the down stairs.

Sentiment: Individual investor Bullish equity sentiment data is indicating a cautious investor. This week’s Sentiment Survey by the American Association of Individual Investors (AAII) reports Bullish investor sentiment at 33.6%. The less volatile 8-period MA of the Bullish sentiment is reported at 27.9% and more than 1 standard deviation below its long run average. Market Tops have not been associated with this low of a level in Bullish equity sentiment.

According to AAII sentiment data, there have been more Bears than Bulls for the 10th week running. Such streaks are Bullish for the S&P 3 months later. The only 2 Bearish cases occurred in July and October 2008, when the economy was deep in a recession and the stock market had already collapsed. That is a very different environment from today.

That said, few participants seem to have expected the market action that has occurred so far this year and further Northside may result from buyers fearing they will miss out on an expanding rally in 2-H of the year, and come off of the sidelines. We wait, We see.

  • NAS Comp +22.8% YTD
  • S&P 500 +18.7% YTD
  • DJIA +16.4% YTD
  • Russell 2000 +14.8% YTD

Support and Resistance

Analysis for SPY is Neutral to Bullish, support is at 296.76 and the resistance is lite at 299.97, SPY finished at 297.17 Friday in NY.

The US leading economic indicators are good in here, which suggests that a recession is not in sight.

HeffX-LTN’s overall technical outlook for Wall Street’s major US stock market from the support and resistance perspective is Neutral to Bullish in here, and our Key indicators are mixed from Neutral to Very Bullish for the consolidation week ended 19 July 2019.

Have a terrific week

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