Market at a Glance - 7/27/2017
By: Christopher Mistal
July 27, 2017
7/26/2017: Dow 21711.01 | S&P 2477.83 | NASDAQ 6422.75 | Russell 2K 1442.28 | NYSE 11964.91 | Value Line Arith 5645.59
Psychological: Frothy. According to the most recent Investors Intelligence Advisors Sentiment survey bulls are back above 60%, a level that suggests taking defensive measures. The CBOE Volatility index trading under 10 for eleven trading sessions (as low as 8.84 yesterday) is also concerning. The bullish, long trade is looking quite crowded.
Fundamental: Stalled. Outside of corporate earnings many other data points are flat or slipping. GDP is stuck around 2%, the unemployment rate has settled into a range around 4.5%, auto sales likely declined for the fifth consecutive month in July and existing home sales are probably topping out as prices climb into record territory and supply remains constrained. The Trump Administration has put the brakes on new regulation and rolled back some, but major policy initiatives remain in limbo. At some point stock market valuations could matter again. 
Technical: Stretched. New all-time highs for DJIA, S&P 500, NASDAQ and Russell 2000 have stretched Stochastic, MACD and relative strength indicators into or near overbought territory. Today’s intraday reversal by S&P 500 and NASDAQ, plus a greater than 3% decline by the Dow Jones Transportation (DJT) could be early signs that the rally is about to take a breather. 
Monetary: 1.00-1.25%. Ahead of the Fed’s July meeting, focus had already shifted from the “next hike” to when the Fed will begin shrinking its balance sheet. They have provided a plan, but not a starting date and we are still waiting. The removal of liquidity from the financial system could have a more immediate impact than a few small rate increases. 
Seasonal: Bearish. August is the worst DJIA and S&P 500 month from 1988-2016 with average declines of 1.3% and 1.0% respectively. It is also the worst month for NASDAQ (–0.3%) and second worst for Russell 2000 (–0.7%) over the same time period. Post-election year Julys also rank at or near the bottom with even greater average declines.