The story of 2017 has been “lack of volatility”. There is finally some volatility entering the market, which is nice for those out there who like to actually trade a bit rather than buy and hold. In last week’s recaps we noted the NYSE McClellan Indicator had registered an extreme oversold reading so a “rubber band” type of snap back rally could happen.
Thursday it hit an extreme level over -80 which we don’t see very often which can lead to short term snap back rallies. But until we get back to sustained levels over zero caution remains in order.
So that “snap back” rally happened Monday – credit given to “an ebb in pressure between North Korea and the U.S. but the real headline should have been “the market was oversold and due for a very short term bounce no matter what!”
Secretary of Defense Jim Mattis and Secretary of State Rex Tillerson over the weekend sought to play down the risk of a military conflict, writing in The Wall Street Journal that the Trump administration is seeking diplomatic solutions to achieve the “irreversible denuclearization” of North Korea.
Some consolidation Tuesday and Wednesday followed but no resumption of the rally later in the week – as we have seen relentlessly in 2017. Hence caution was still in order as the rally Monday simply relieved some short term pressure. Thursday saw another selloff of a good sized nature as the market was spooked by reports that Gary Cohn was planning to resign as an economic adviser to the president.
Cohn is “seen as the glue holding Trump’s pro-business agenda together,” Deutsche Bank’s strategists said. “The fears are that if he goes, you take a further step back from tax cuts and deregulation.”
Caution remains the name of the game as it has been for a few weeks now. For the week the S&P 500 gave up 0.7%, and the NASDAQ 0.6%.
Wednesday came the Federal Reserve minutes and as expected no major fireworks and more caution as has been the case for nearing a decade!
The minutes from the Fed’s meeting in July showed that most Fed officials wanted to wait until the next monetary meeting to unveil details on its planned unwinding of its $4.5 trillion in bondholdings, indicating an announcement is possible in September. The Fed also discussed the surprisingly low inflation readings, with a few officials noting that the Fed could be patient before raising interest rates again.
Cisco Systems (CSCO) weighted on tech Thursday. It fell 4% after the networking-equipment company late Wednesday reported earnings that missed forecasts and lowered its guidance for next quarter.
The main economic news of the week was retail sales but again this was a “snap back” reading as 2 negative reports had hit in prior months. That said those 2 “negative reports” suddenly disappeared upon revision…hmm #FAKENEWS??:
Sales at U.S. retailers surged in July to the highest level of 2017, aided by strong demand for new autos and Amazon’s Prime Day shopping specials. Sales at retailers nationwide jumped 0.6% last month, the government said Tuesday. Economists had forecast a 0.4% increase. Amazon held its annual Prime Day last month offering cut-rate prices on thousands of goods. That helped boost sales of so-called nonstore retailers by 1.3% last month, the largest increase since December.
A mysterious decline in spending at the end of the second quarter, meanwhile, vanished after fresh government revisions based on newly incorporated sales data. Retail sales actually rose 0.3% in June instead of falling 0.2% and sales in May were flat.
Here is the 5 day weekly “intraday” chart of the S&P 500 .. via Jill Mislinski.
Eclipse hits Monday – here is a fun info graphic showing which states will see the most population boost and economic impact!
The week ahead…
Another quiet week of economic data – durable goods (-6% expected) will be the only one to really watch.
Central bankers head to Jackson Hole, Wyoming for their annual get together. CNBC will spend far too time on that. Both Janet Yellen and European Central Bank president Mario Draghi are set to speak on Friday.
Short term: The early week snap back rally got the S&P 500 back above the 50 day moving average but the selling Thursday broke the index back down below that level. It’s pretty choppy out there now. The NASDAQ “filled a gap” from early July – if things finally get dicey this year there is another to fill from April near 5900.
The Russell 2000 continued it’s path of 2017 as the weak sister of the indexes. It closed below the 200 day moving average for the first time in 14 months!
The 286-session stretch that the index has closed above the line would be the longest since the 363-session stretch ending May 5, 2014. The Russell 2000 is seen by many as a leading indicator for the larger cap indexes, as small cap stocks tend to be less liquid than large caps so they tend to underperform during market declines and outperform during market rallies.
The NYSE McClellan Oscillator was extremely oversold entering the prior week so it signaled a short term bounce. Which happened. Now it is just “oversold”. There is a lot of work to do to get back to positive. Still a negative marker.
Long term: Here are 5 year charts on the major indexes; at some point we will say something different but for long term buy and holders it’s still a very good situation – but finally a wrinkle or two near term.
Charts of interest / Big Movers:
We said last week this was going to be the week a lot of retailers report – and to prepare! We’ll spare you MOST of the horror but we have to show you some of it. Shield the eyes of the children! Tuesday, Dicks’ Sporting Goods (DKS) plunged 23% after the retailer reported second-quarter earnings that missed estimates and issued a profit warning.
Coach (COH) slumped more than 15% Tuesday after the luxury-goods retailer reported fiscal fourth-quarter net profit that rose to $151.7 million, or 53 cents a share, from $81.5 million, or 29 cents a share, from a year ago.
Advance Auto Parts (AAP) shares dropped 20% Tuesday after the auto-parts retailer reported weaker-than-expected profit for the quarter.
Friday, Foot Locker (FL) plunged 28% after the sports-apparel company significantly missed profit forecasts.
Some good news in the sector Wednesday as Urban Outfitters (URBN) soared 18% after the retailer late Tuesday reported earnings that easily beat estimates. Boo yah! Still a disaster chart but beggars can’t be choosers!
More good news! Ross Stories (ROST) rallied nearly 10.7% Friday after the off-price retailer late Thursday reported earnings and sales above forecasts.
Here is an interesting change in character – a tech stock falling on good news. When stocks stop going up on good news it is time to take note! NetApp (NTAP) fell 6.7% Thursday despite reporting earnings that came in ahead of expectations. The stock has gained nearly 40% over the past 12 months.
Also Friday, Deere & Co (DE) was down 5.4% after quarterly sales at the farming-equipment company missed expectations.
Have a great week and we’ll see you back here Sunday!