Bulls Need to Recapture 1,200 on S&P 500 Before Month’s End
This morning’s much better than expected durable goods report for July has bullish and bearish implications:
- Bullish – economy is better than expected.
- Bearish – Less likely the Fed will deliver a market-friendly speech at Jackson Hole on Friday.
It should be noted the durable goods number this morning was for July - before the stock market dropped. Consumer and business confidence had not been hit hard yet by falling asset prices.
The fact that the pre-open stock futures remain in the red after a good durable goods report is a little concerning. When markets can shrug off bad news, it is a good sign. When markets do not respond to good news, it is a bad sign. Futures did improve after the durable goods report, but not as much as you would expect.
As we outlined on August 23, numerous long-term bearish signals are present on weekly charts. Similar bearish signals can be found on monthly charts, but these signals become much more meaningful if they carry into the end of the month. We can add the monthly Bollinger Bands for the S&P 500 Index to the growing list of concerning signals (see chart below). We got some good economic news today and the Fed is on tap for Friday. If the S&P 500 can close above 1,200 on Wednesday, August 31, it will negate the bearish signal on the chart below.
If the bears can maintain control of the markets, we would consider adding to our fixed income holdings if a good entry point appears. We also have an interest in agricultural commodities, which trade as ETFs under the symbols DBA and RJA.
Our strategy will come into better focus over the next week. As of this writing, there is little in the way of encouraging news, both fundamentally and technically, for the bulls. However, as we have mentioned on several occasions, markets rebounded in 1994, 1998, 2004, and 2010 after similar dire circumstances. We will remain cautious until we see some evidence supporting a sustainable turn in asset prices. In addition to agriculture (RJA), our watch list for bullish outcomes includes, Australia (EWA), energy (XES), and real estate (IYR). If bearish conditions hold, our short list includes Treasuries (TLT), gold (GLD), diversified bonds (AGG), TIPS (TIP), silver (SLV), gold stocks (GDX), the Yen (FXY), and Australian dollar (FXA).
