Market at a Glance 5/28/2015

By: Christopher Mistal

May 28, 2015

Psychological: Confused. There is plenty of bullish sentiment and not a lot of bears. Investor’s Intelligence latest survey reported bull advisors at 48.5% and bearish advisors at 14.9%. S&P 500 is above 2120 and flirting with new all-time highs, but bond yields have fallen since mid-May signaling some flight to safety is happening. Low trading volumes and volatility suggest that traders and investors are uncertain if recent market strength is for real or just another fake out.

Fundamental: Tepid. Recent economic data is pointing to the strong possibility that 2015 Q1 GDP will be negative and the outlook for growth is suggesting another year around 2% GDP for the U.S. Weak growth however has not translated into major trouble for the job market yet. It is likely to impact corporate earnings which are now forecast to be flat to negative in Q2.

Technical: Range bound. Although the DJIA, S&P 500 and NASDAQ have been able to extend the top end of their respective trading ranges with modest new all-time highs, a meaningful and lasting breakout has yet to materialize. Stochastic, MACD and relative strength indicators all reached overbought levels in mid-May and have since eased to essentially neutral. A brisk market pullback, to the 200-day moving averages or lower, would actually be welcome as it would likely clear the path higher. Current 200-day moving averages are around DJIA 17560, S&P 500 2040 and NASDAQ 4740.

Monetary: 0-0.25%. There was no FOMC meeting in May, so we will all have to wait until June 17 for the next clue as to when rates may begin to normalize. Based upon recent data and Fed minutes from their April meeting, any rate increase is likely to be later rather than sooner. A modest bump in inflation (likely due to energy’s bounce) is not likely to trigger a rate increase. The Fed is likely waiting for several consecutive months of across the board positive economic data. Not the mixed readings we continue to see. For now, all that have access can continue to enjoy virtually free money.

Seasonal: Bearish. June is the last month of NASDAQ’s “Best Eight Months.” NASDAQ’s Seasonal MACD Sell signal can occur as soon as June 1. In pre-election years since 1950, June ranks no better than mid-pack. Recent pre-election year Junes in 2011 and 2007 were troublesome for the market as DJIA, S&P 500, NASDAQ and Russell 2000 all declined.