Stocks sold off moderately Monday morning but dip buyers came in yet again – a pattern we have now seen for 2 months – and indexes close near unchanged. The S&P 500 gained 0.03% while the NASDAQ dropped 0.10%. News flow was light; keep in mind we do have the Federal Reserve meeting Tuesday and Wednesday but they have telegraphed their intentions so no fireworks will come of this. We also have the monthly employment data coming Friday. There was another weak housing report today as the National Association of Realtors said pending-home sales were down 1.1 percent in June.
The NASDAQ actually pulled back at its worst point this morning to the line that connects the July highs that we saw a breakout from last week. We’ll see how things work out but we are in an area of flux right here – there might be a mini bearish “double top” just created in this index as well. Bigger picture after a great June, July has been a tug of war in a narrow area.
We are consistently negative of late in the NYSE McClellan Oscillator which is a secondary warning sign if you will; a positive reading in between 0 to 40 is a much better place to be as we saw in June. That said near term we are approaching oversold again which indicates the indexes are masking some weakness as the indexes are not down much of late but this oscillator is quite negative.
Apple (AAPL) is a good reason the indexes can hold up while we see some underlying weakness – it is a massive component of the NASDAQ and the largest in the more broadly spread S&P 500. So if it is running a lot of other companies can be stagnating and the indexes still look solid.
You can see homebuilders have been selling off in the background of this market, as shown by the ETF ITB.
We’ve been bullish on the emerging markets ETF (EEM) since the breakout in late March and it continues to impress. After dropping in knee jerk reaction to the Malaysian airline crash it has reversed 180 degrees and made another high today. This is starting to get in rare air, but since early May has been riding its 20 day moving average – until that changes it remains one to hold onto.
If you have been following the soap opera that is Herbalife (HLF) it had a wild week last week. After the bell today it reported a slight miss and the stock is down nearly 12%. But with this stock that could mean it is down 18% or up 2% by tomorrow!
If you follow long time market veteran Marc Faber, he is calling for a severe correction of 20 to 30% by October. Of course just about every market pundit has been calling for a 10% correction the past 2+ years and it is not happening.