Friday was a typical holiday trading session with higher prices on low volume. Thus, hard to trust the conviction of such moves when so many traders were not in the mix.
This coming week should give investors the details they truly need to determine market direction. This comes in the form of a fully loaded economic calendar boasting both quantity and quality. The key reports highlighted in bold:
Tuesday: Personal Income & Outlays, Chicago PMI, Consumer Confidence, China Manufacturing
Wednesday: EMU Manufacturing, ADP Employment, ISM Manufacturing, PMI Manufacturing, Construction Spending, Global Manufacturing PMI
Thursday: Chain Store Sales, China Services PMI
Friday: EMU PMI Composite, Government Employment, ISM Services, PMI Services, Global Composite PMI
This finally seems like the moment of truth. Either fundamental conditions are good enough to break above 2100 or the economic outlook is not as rosy leading to a meaningful pullback. Watch closely and let’s trade with the momentum.
There were some events on Friday worthy of comment. Here is the roll call.
Q1 GDP was revised up to +0.8% which is just shy of expectations. The best part of the report was improvements in residential investment. The worst part is continued problems in business inventories.
Consumer Sentiment spiked from 89 to 95.8 last time which is a rare and unusual one month move. This time it came down a notch to 94.7. Yes, this is better than the recent past, but everything under 100 is considered poor sentiment.
Finally you have the afternoon speech from Janet Yellen. Investors fixated on her comment that raising rates in the next few months seems appropriate. So the yo-yoing rates did bounce higher on that news and the dollar got stronger.
All of this on a low volume day that dared to run up towards 2100. I knew the conviction wasn’t there to break above today so my finger was nowhere near the trigger to send out trades. Next week is a different story.
So contingency plans are still in place in case of a breakout above 2100. We covered it in yesterday’s commentary. So I will repeat the key sections below.
“Given recent emails from customers I know folks want more clarity on the contingency plan for any potential breakout above 2100. The first thing to tackle with that is defining what constitutes a breakout.
It’s easier to make that call in hindsight than in real time. For example back on April 20th stocks soared to an intraday high of 2011, but closed barely above. A week later stocks were all the way back to the 2050 area. Gladly we did not take the bait.
This is another way of saying I will not immediately become entranced on a move above 2100 unless it seems correlated to a strong fundamental event. If not, then I need more convincing price action than just another intraday flirtation above the mark.
