Friday, August 16, 2013

S&P 500 Tests 50-day Support

The market is slightly higher in early trading.  It's a summer Friday when vacation season starts to heat up on Wall St, so volume is likely to be lighter than usual.  The S&P 500 came down and touched its 50-day average this morning and is now attempting a weak bounce.

The other indexes are also higher, and actually leading the S&P 500.  Bond yields are also slightly higher today to 2.78%.  Yesterday they broke above 2.80% but closed near their lows of the day around 2.75%.

Housing starts hit 896,000 in July, which was higher than an upwardly revised rate of 846,000 in June.  And building permits rose to 943,000 from the prior month's rate of 918,000.  Homebuilding stocks are rallying on the data.

Separately, the Univ. of Mich. consumer sentiment report fell to 80.0 in July from 85.1 the prior month.

Asian markets were lower across the board overnight, led lower by a -4.0% drop in India.  Ouch.  Hong Kong reported GDP growth of 0.8% for the quarter.

Europe's markets are mixed.  Eurozone CPI fell -0.5% month over month.

Commodities are mostly higher.  Oil prices are up again near $107.85 amid continued tensions in Egypt.  Gold prices are also higher to $1368.  Silver and copper prices are also higher again today.

The volatility index spiked to its overhead 50-day average yesterday.  Today it is moving lower from that resistance level, down -6.7% to 13.75.

Trading comment: Markets rarely go down in a straight line.  So far the S&P has pulled back 3% from its highs earlier this month.  We would expect a little more of a pullback on a percentage basis, but these things are never precise.  That said, it would be normal to expect a bounce from here first.  Often we see a somewhat weak bounce from key support levels (50-day average), and if the bulls are unable to gain any traction the market comes back down and tests the recent lows.  It is only at the time of that test that we can tell if the market looks like its going to probe lower levels.  So again, we want to be patient.  We put maybe 1/3 of our cash to work at current levels, and then we wait and see if we get a chance to put more to work at lower levels.


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