A week ago Friday the NASDAQ put in an “outside reversal” day – this is approximately a day where the trading range exceeds both the prior day’s intraday high and intraday low, and then a close below the prior day’s intraday low. See our NASDAQ chart from a week ago below:
This is often a quite bearish signal, but the market has been so immune to any real selling for so long, it has been difficult to take anything “bearish” seriously. (Which in and of itself should be a contrary signal to be bearish!) It is comforting to see the market act somewhat normally, despite the flood of money central bankers have put into the market month after month for years. We actually saw NASDAQ stocks get hit this past week – woo hoo! Not that there was any major damage, but still it was nice to see technicals work a bit. That said, the S&P 500 continued on pace — the NASDAQ had simply gotten way too overextended so a bit of a “rubber band snapback” happened there.
Anyhow back to your normally scheduled bull market….
Entering the week, the Federal Reserve had telegraphed an interest rate hike to be delivered Wednesday. That happened. Yawn.
The Federal Reserve lifted a key U.S. interest rate and laid out a plan to shrink its massive $4.5 trillion balance sheet starting “this year.” The Fed as expected on Wednesday raised its benchmark federal-funds rate by a quarter percentage point to between 1% and 1.25%. Senior Fed officials also stuck to their plans for just one more rate increase this year.
“When a rate hike probability is at 99%, it is very difficult to have a big reaction after the announcement,” said JJ Kinahan, chief market strategist at TD Ameritrade.
“Many hoped the Fed would give details about the unwinding of the balance sheet, like how much and how soon and at what pace. But the Fed was vague, only saying it will start to ‘shrink gradually’ sometime this year. They gave themselves a lot of leverage to shrink the balance sheet as they see fit,” he said.
Economic news was sparse; retail sales on Wednesday was the only real interesting data point – weak sales in May offset strong sales in April; so effectively there was a wash between the 2 months:
U.S. retailers in May reported the biggest decline in sales in 16 months, largely owing to lower gasoline prices and fewer Americans buying new cars and trucks. Sales at retailers nationwide sank 0.3% last month, the biggest drop since January 2016, the government reported Wednesday. The reversal last month unwound much of the strength in April when sales jumped 0.4%. April sales benefited from a late Easter holiday and the arrival of tax refunds for millions of American workers.
Sales at auto dealers slipped 0.2% last month. Auto sales account for about one-fifth of all U.S. retail sales and have an outsized impact on the monthly report. Lately auto sales have cooled off a bit after a string of large annual gains that put them at record high.
That’s auto sales factoid was one I was never aware of.
Returning to things we’ve been talking about for a few years now:
The only bright spot, once again, was the fast-growing internet segment. Sales jumped 0.8%. Sales at traditional department stores, on the other hand, fell sharply. They declined 1% in May, the worst performance in nearly a year.
Industrials don’t care…
Neither does healthcare….
Here is the 5 day weekly “intraday” chart of the S&P 500 …not per Jill Mislinski.
Fun fact: As of Thursday, the NASDAQ had gone 131 days without closing below its 50 day moving average, the longest streak since March 10, 2011, according to Bespoke Investment Group.
7% of American adults believe chocolate milk come from “brown cows”. So there’s that…
The week ahead…
A bit of a limbo week ahead but let’s watch if this rotation out of big cap tech and into other sectors of the market continues:
“It’s probably going to be a quiet week: A majority of economic reports have been disappointing, we’re still a ways from earnings, Washington has created a panic exhaustion for investors, and I’m not expecting tech [movements] to spill into the broader market,” said Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research.
Aside from some housing data the economic calendar offers little in the way of interest.
Short term: That outside reversal day in the NASDAQ did indeed signal some short term weakness at least – that’s nice to see. The S&P 500 remains peachy.
The Russell 2000 remains stuck in this lengthy range in yellow.
The NYSE McClellan Oscillator is a bit choppy but mostly in black the past few weeks.
Long term: Here are 5 year charts on the major indexes; we are a broken record here but it would take a very severe selloff to change prospects here.
Charts of interest / Big Movers:
Let them eat CAKE! Cheescake Factory fell 9.9% Tuesday after the company cut its second-quarter outlook.
Thursday, Kroger (KR) plunged 19% after the supermarket operator cut its full-year profit outlook. It was then demolished anew Friday after ….
…. Amazon decided to buy Whole Foods (WFM)!
Costco (COST) and Walmart (WMT) didn’t like that news either.
Have a great week and we’ll see you back here Sunday!