Scoreboard
The last week of July ended green overall, but on a sour note. The bitter aftertaste was due not so much to the extent of the drop, but for the fake-out bulls fell for.
Friday's open ripped higher on really bad Economic data (ECI). The small caps were +1 percent. Markets however drooped into the close to approximately -0.4 percent. The early run up was built on bulls hoping that the bad news would delay the lift-off date.
Observation: The early sharp rise on bad economic news confirms that markets may still fear the rate hike. Therefore, nothing is priced in from the rate hike perspective. Here it is as it happened on Friday:
Focus Points
Looking Ahead
Ranges: Be Cautious. There has been a defined range for a long span. This creates the possibility of a violent break of the range. Meanwhile, all the ranges are still playing out logically. Markets tested upper and lower limits of the range. Keep in mind that the amplitude of the moves is getting larger, indicated by increasingly larger swings.Don't chase. Don't panic. Be cautious.
- General: Weekly candles were green, but with lower lows and lower highs. Recently, the bullish technical setups have seen a significant destruction, but fast reparations followed. The rallies so far have been of relief nature.
- IYT: Green shoots from the iShares Dow Jones Transport. Avg. (ETF)IYT as they finally broke out of the "lower highs" trend.
- VIX: Last Friday, the fear gauge touched 11.85. There have only been handful of times in past 12 months where the VOLATILITY S&P 500 VIX was this low.
- Other Variables: Facts did not change this week only sentiment so no change in thesis.
- Chevron Corporation CVX: Closed -4.9 percent on Friday.
- Exxon Mobil Corporation XOM: Closed -4.6 percent.
- Dow Jones Industrial Average (INDEX: .DJI)
- LinkedIn Corp LNKD: Friday fake-out after hours from +15 percent to -9 percent. Image Credit: Public Domain
Thesis
Rates: Crashed on Friday, verifying that the rally was relief over the Fed not raising rates immediately. However, the markets did not take advantage of it. Now the CBOE Interest Rate 10 Year T Note TNX has that the potential of breaking down (lower rates), but if it bounces, then it has the chance to resume higher (follow the crayon). Oil: Last Friday, oil continued its crash, -3 percent, despite the weak dollar. The same trend can be seen in other commodities and gold.Tickers:
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