The market limped out of May, but brought lingering concerns that include the overarching question on the true state of the economy, which has seen monster numbers in home sales and now consumer spending. With the jobs report coming out on Friday, investors aren’t sure whether to root for a good number or disappointment.
Root for good news.
The era of stocks going up on bad news has come to an end as witnessed by stock hit on financial results that see big bottom line beat, but revenues coming up short.
After several consecutive up months, the markets look to be taking a bit of a breather, at least as we start the day. Wednesday morning’s economic data from around the world was mixed and there are some concerns over the flash crash in the Chinese market (down 10%, but finished the day unchanged). Chinese PMI data released Wednesday morning was weak, coming in at 50.1 for May coming in above the 50 estimate, but the non-manufacturing component declined indicating a slowing in services activity. The Caixin China PMI, a read on smaller companies, came in below expectations in May to 49.2
Add to it that Japanese Prime Minister Shinzo Abe declared that he will be adding additional stimulus and delay the planned sales hike until October 2019 due to the global challenges and risk for the country’s economy. So, global woes are not over.
This is a heavy week for economic news. Auto sales have started coming out and are expected to be lower as there were two less selling days in May. Economists expect a rate of 17.3 million vehicles in May, about the same as in April.
From a Technical View
The market paused to catch its breath when trading resumed after the holiday weekend. It's no real surprise given the near vertical run it’s had over the past 7 trading days. The indices are reaching key resistance levels.
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The NASDAQ has led the way, and is just below resistance at the April high of 4969, and on the verge of a bullish moving average cross. The last hour of yesterday’s trading was very strong coming off the low of the day to make a new high right before the close. The conviction is compelling. Advancers (53%) outpaced decliners (43%) on 64% up volume vs 34% down volume.
The SPX is not as extended as the NASDAQ and is sitting right below resistance at 2100. A breakout is critical to a continuation move. But, nothing goes straight up, and a pullback to test support at 2084 is likely in the near term.
The Dow is playing catch up at this little party and needs to take out the May 10 high at 17.934, and from there, it is a quick trip to the 2016 highs at 18,100. In an interesting move, the transportation stocks (DJT) closed above their 200 day exponential moving average on good volume. The May highs at 7846 are well within reach.
A bit of a pause and consolidation here won't be bad at all. Breakouts are within easy reach across the board.
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