This week....... Everyone would be forgiven if they thought that the onset of summer has also brought to the markets the summer doldrums. Markets seemed to be almost standing still this past week. If there was any action it was in Iraq with the ongoing civil war or the ongoing civil conflict in #Ukraine. As of about 3:00pm on Friday the S&P 500 had barely budged all week. It was off a small 0.3% on the week. This was despite the release on Wednesday of the 3rd estimate for Q1 #GDP that showed the US economy contracted at the rate of 2.9%. This was revised down from the previous release that showed a contraction of 1%. This steep revision to the downside should have stopped any thoughts of a complete rebound for #Q2. But it hasn’t. The belief is still out there that Q2 should be ok and #Q1 was just a bad winter aberration. Trouble is most of the numbers that have been coming in during Q2 are pointing to a possible contraction as well. Housing is going nowhere as only luxury housing is benefitting. Durable goods orders this past week for May fell 1% when the market had been expecting a gain of 0.5%. Personal income for May was up 0.4% but personal spending was only up 0.2%. One can only presume that the differential is either going into savings or paying down debt. Retail sales have been anaemic at best and the trade deficit is widening not contracting. The Michigan sentiment indicator was steady as expected at 82.5 but that remains far below where it was in 2006. The expectation remains rosy for Q2. But the numbers are suggesting otherwise. The S&P 500 has been treading water now for seven days. This shouldn’t last. The S&P 500 can’t seem to make any headway above a 1,970 ceiling and even if it did there is a bigger ceiling up around 2,000. Maybe they want that magic number. The risk is below where a break first of 1,945 then under 1,930 would spell trouble with a decline to 1,900 and even down to 1,865. Ok so the market has had numerous pullbacks over the past few years as it just keeps on rising. So a pullback to 1,865 is not a big deal. But a breakdown under 1,825/1,850 would be. The expectation is that Q1 GDP was an aberration not to be repeated for Q2. They might be in for a surprise. Next week is the #nonfarmpayrolls for June and the market is looking for 210 thousand new jobs and the #unemployment rate to remain at 6.3% (U3). Despite the rosy report it has been acknowledged that U6 unemployment should remain high in the 12% plus area (includes part time workers and discouraged workers). If the stock market has appeared to be standing still so has the precious metals market. #Gold and #silver are both up this week but barely. The gold stocks have barely budged as well. All of this is probably putting everyone to sleep. The US economy is showing signs of weakness and a civil war is raging in Iraq. The markets seem to shrug. Gold has resistance at $1,325/$1,330 and support down to $1,305/$1,310. If there was a worst case it would be for a drop to about $1,290 to test the most recent breakout level. The major resistance is up around $1,360/$1,370 and that appears to remain a reasonable objective for this move. Again as I have stated in the past I am not sure whether this up wave is merely a continuation of a pattern that has been forming for the past year since the low of June 2013 or is the start of a potential new bull up move. If it is a continuation pattern then risks remain to the downside including the risk of a breakdown under the double bottom June/December 2013 low near $1,180. A firm break above $1,370 would be positive. A break above $1,390 even more positive and a break above the August 2013 high near $1,430 would be quite positive. Until any of those points are taken out risks remain to the downside. Even #oil prices failed to move this week. Indeed they are off slightly despite the war continuing to rage in #Iraq with the #Sunni rebels seizing more oil facilities. Potential objectives for oil prices still appear to be up to around $111/$112. Currently there is resistance up to $109. Below a break of $103 would be a sign of weakness but a break under $100 would end any thoughts of higher prices for now. Maybe oil is pausing as I have seen stories that the US might be amenable to a break up of Iraq with the Kurds in the North forming Kurdistan along with the Kurdish area of Northern #Syria; a Sunni country to be formed of out the northern part of Syria and the western provinces of Iraq; and, a Shia country (Basra?) formed out of the Shia dominated parts of eastern/southern Iraq. Probably logical except the Shias might not agree, #Turkey with its large Kurdish population would not be pleased with the formation of Kurdistan, and Assad of Syria might not be happy to lose over half his country. In the interim the civil war in Iraq keeps showing signs of spilling over into other countries such as Jordan and the Iranians could become more involved on behalf of the Shia government in Baghdad. A further deterioration of Iraq would be positive for oil prices. As to the market well this narrow range trading shouldn’t last forever. Happy #CanadaDay Everyone!
Posted on: Tue, 01 Jul 2014 12:08:09 +0000
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