Stocks Pause at Critical Levels as Economic Signals Weaken
It was a weak trading session, but the market gave back only a small portion of yesterday's gains. Things turned around after the weaker-than-expected ISM services report was released. The data across the report was really bad and corresponds to a real GDP growth rate of just 0.5%.
In fact, the prices paid index climbed to 69.9, its highest reading since the fall of 2022. It is no wonder that CPI swap rates are climbing.
It's possible that we have finally reached a point where the hard data has caught up with the soft data, and next week's CPI report could confirm as much.
The good news is that the trade imbalance shrank in June to -$85.85 billion. The bad news is that it shrank because imports collapsed, while exports only fell slightly. Now, granted, there was a huge run-up in the tariffs, and now we are on the other side of that run-up. It will be interesting to see how this number evolves.
Trade with China has collapsed, though.
At least for today, the S&P 500 hit the 61.8% retracement level, and that is where it stopped perfectly. We now need to see the index break below the lows from Friday for confirmation that a change in trend has occurred.
The NASDAQ did one better, not only rising to the 61.8% retracement level but also hitting and reversing off the uptrend it broke on Friday.
While it all looks visually appealing, it doesn't really mean anything unless we see downward momentum in the indexes, which is achieved by taking out the lows seen on Friday.
The dollar index is struggling at this point to maintain any bullish momentum. It broke out of that falling wedge in mid-July, retested that breakout towards the end of the month, and looked like it was really ready to run higher. However, the jobs report arrived, and everything changed. For now, the dollar remains at the 10-day exponential moving average, and perhaps more importantly, has an RSI that is still trending higher. The dollar appears to be in a tough spot, and hopes for a broader recovery are hanging by a thread at this point.
-Mike
Terms By ChatGPT
ISM Services Report: A monthly survey conducted by the Institute for Supply Management that measures economic activity in the services sector; a lower-than-expected reading indicates slowing growth.
GDP (Gross Domestic Product): A measurement of a country’s economic output and growth.
Prices Paid Index: An indicator from the ISM report that measures inflation pressures based on the prices businesses pay for inputs.
CPI Swap Rates: Financial derivatives indicating investor expectations for future inflation.
Trade Imbalance: The difference between a country’s imports and exports; a negative figure indicates a deficit.
Retracement Level (Fibonacci Retracement): Technical analysis tool highlighting potential resistance or support points during price corrections; the 61.8% level is considered significant.
RSI (Relative Strength Index): Technical indicator measuring momentum; an upward trending RSI suggests potential bullish momentum.
Exponential Moving Average (EMA): Technical indicator that gives more weight to recent prices, used to gauge short-term market momentum.
Falling Wedge: A bullish chart pattern formed by converging trendlines, indicating potential upward reversal after a decline.
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