Good Evening,
Trading recently with the exception of Tuesday, which was disastrous, has pretty much followed the same script. That is, soft in the morning and picked up by the dip buyers in the afternoon resulting in a small gain that is nothing to get excited about. The market has showed consistent strength, just not enough of it to rise through upper resistance. The only difference today was that there was a little higher volume due to the re-balancing of the Russell indices. That is pretty much it. Worth mentioning is that all the small gains were eliminated by the one bad day. Rev Shark explained the re-balancing in his morning comments. I have included them below.
RevShark:
06/27/14 7:48 AM: Morning Thoughts“It is a summer Friday but volume today is likely to be close to the highest level of the year. It isn’t because there is great interest in the market. It is because today is the day that the Russell indices are rebalanced at the close. There will be huge blocks of stocks crossed at the close as the adjustment are made. A list of the stocks that are being added and deleted can be found here. http://www.russell.com/indexes/americas/tools-resources/reconstitution/additions-deletions.page#indexesThe Russell reconstitution is important not only because it creates huge volume but because it can create some unusual volatility. Big baskets of stocks are bought and sold using complex schemes to ensure that the brokers who put together these transactions don’t lose money. In years past there has been sudden intraday surges and drops on the day of rebalancing as these programs go to work.Keep in mind that many of the shares needed for the rebalancing have already been bought or sold by brokers who are now waiting to cross the trade to the index funds at the close. Their goal is to make sure they aren’t caught with big losses in doing so which is why some of the program trading can be quite disruptive today.In addition to the Russell rebalancing games we have the typical end of the quarter window dressing to consider as well. This should help to keep a bid under the market as it has for the last few days. Window dressing probably helped the indices bounce back from the sharp selling that occurred yesterday morning which was probably caused in part by the Russell rebalance.The computer games will provide some volume and brief bouts of action but we are still likely to be plagued by slow trading. We have had good price action following the sell-off on Tuesday afternoon but not much in the way of momentum. The buyers are providing support and the bears have been rendered impotent again but the pockets of strong momentum are quite limited.There is no question that the market remains in an uptrend but upside progress has been slowing. The S&P500 hasn’t had a new high in five days now, which is nothing at all unusual, but it is a slight stalling and reflects the limited momentum we have seen recently.There is good action under the surface as select momentum and small caps names attract speculative interest but it has been narrowing and there are quite a few landmines. For many traders it has not been an easy environment.There isn’t much news flow and the only economic report due is Michigan Sentiment at 9.55 am ET. The market is generally healthy and we are going to see some big volume at the close. Our job is to keep on digging for opportunities and that is what we will do.”
NEW YORK (CNNMoney)
The Fourth of July is a week away, but there have been a few fireworks this Friday in the stock market.
The day’s action left us with the following signals: C-Buy, S-buy, I-Neutral, F-Buy. The F Fund generated a buy signal as it managed to keep trading above its 20 EMA. Hopefully, the improvement in our Bond Fund is not an indicator of the future, but rather a result of the bad day for stocks (good for bonds) on Tuesday. Time will tell. We remain invested at 25/C, 75/S which was about the best place to be today. Our allocation is now -3.10% on the year not including today’s results which should help the bottom line. Here are the latest posted results:
| 06/26/14 | |||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 14.4504 | 16.4093 | 25.5468 | 35.4259 | 26.7381 |
| $ Change | 0.0008 | 0.0279 | -0.0256 | -0.0344 | -0.0009 |
| % Change day | +0.01% | +0.17% | -0.10% | -0.10% | +0.00% |
| % Change week | +0.04% | +0.48% | -0.26% | -0.45% | -0.95% |
| % Change month | +0.16% | +0.02% | +1.90% | +3.47% | +0.53% |
| % Change year | +1.14% | +4.24% | +7.00% | +5.21% | +4.59% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 17.214 | 22.6489 | 24.5428 | 26.0987 | 14.8373 |
| $ Change | -0.0001 | -0.0059 | -0.0090 | -0.0119 | -0.0082 |
| % Change day | +0.00% | -0.03% | -0.04% | -0.05% | -0.06% |
| % Change week | -0.04% | -0.22% | -0.29% | -0.35% | -0.42% |
| % Change month | +0.48% | +0.98% | +1.24% | +1.44% | +1.59% |
| % Change year | +2.36% | +3.91% | +4.62% | +5.09% | +5.50% |
Here’s what the SPY looked like today courtesy of the fine folks at Stockcharts.com:
Price has basically been consolidating on resistance, unable to break decisively one way or the other. The PMO looks like it is on the line, but it is actually slightly above it by thousandths of a point so a PMO SELL signal was not generated.
The weekly chart is telling. Price has been bumping right up against long-term resistance for weeks now. On a somewhat positive note, the PMO had a positive crossover its EMA. It’s only somewhat positive because it happened in overbought territory and the PMO has been subject to ‘noise’ and flattening which make it less reliable.
Conclusion:
The market is due for a pullback. Price has hit resistance on the weekly chart, indicators are not oversold and the PMO should have a negative crossover on Monday. While this rally could continue, it’s in an area that has held strong resistance for quite some time so it will take some big news to push it through.
We ended the week about where we started it. Here’s to hoping the late afternoon push will have some follow through in Monday to start next week off right. We need a little momentum to shake our allocation loose. Well, that’s all for this week. Keep praying, we need as much of it as we can get this year! Have a nice weekend.
God bless,
Scott
