Orders for durable goods in the U.S. increased less than forecast in July and sales of new homes unexpectedly dropped, increasing the risk of a renewed recession in the world’s largest economy.Tonight’s update is going to be brief as it’s been a long day.
Bookings for goods made to last at least three years rose 0.3 percent, figures from the Commerce Department showed today in Washington. Excluding transportation equipment, demand fell by the most in more than a year. Purchases of new dwellings fell 12 percent to an annual pace of 276,000, the weakest since data began in 1963, figures from the same agency showed.
The reports indicate capital spending, one of the few bright spots in a weakening economic recovery, is slowing as the second half begins, while a lack of jobs is crippling housing. Mounting signs of a slowdown are increasing pressure on the Federal Reserve to find more ways to spur growth after saying this month it would prevent its securities holdings from shrinking.
“The risks of a double-dip recession are steep enough to provide cause for worry,” said John Lonski, chief economist at Moody’s Capital Markets Group in New York, who said the odds of another economic slump are now about one-in-three, twice as high as earlier this year. “It calls for more remedial action by the Federal Reserve.”
Stocks rallied, erasing earlier losses, and Treasuries dropped on speculation the retreat in riskier assets was overdone given the economic outlook. The Standard & Poor’s 500 Index rose 0.3 percent to 1,055.33 at the 4 p.m. close in New York. The yield on the benchmark 10-year note increased to 2.54 percent from 2.49 percent late yesterday.
$SPX Daily: As I pointed out last night we had minor support at 1,040, which the market firmly tested and bounced from today. As much as I have been trading the bearish view, we need to give respect to what the opposite view might be because that is the risk of trading bearish. The market at 1,040 may have created an ABC down, and if that is the case, the market should rally from here as it has finished the right shoulder of an inverse H&S pattern. That’s not my primary view in part because we’ve seen this structure on other indexes, stocks, and ETFs, and for the most part they have all broken down further. But as always, we need to know the risk of our current trading view.
IBM: Is the move down in IBM just an ABC or will it become more? We need more price data. The Bollinger Bands and RSI suggest lower, but Big Blue is a market favorite, and if the market is going to reverse, we should expect IBM to do the same. We should know by month end.
$VIX: Still stuck around the down trend line, it’s giving us nothing. The index should decide soon on direction.
JNK: We closed our short position today because it’s just not doing anything. It’s below the up trend line, but we need price to do something to provide a better view.
$COMPQ and XLF: Both bounced off support, so we need to keep an on eye these for bottoming type structure for a potential reversal signal. $COMPQ had a bullish looking candlestick today.
SUMMARY: I still think the down trend in the market is in place based on the structure so far, but that could change. We are stuck in between resistance of 1,063 and support of 1,040. I’d like to see that resolved, and it should soon. I still think there’s a chance if a mini melt down in the next couple weeks.
My Watch List: I’m only going to chart a couple of things I might trade on the bearish side because the market is in No Man’s land.
CAT: The stock has gapped below the up trend line and then tested a prior price low today. Still below the Bollinger Bands with bands widening. Still on the bearish trading view. RSI and MACD both have room to move lower with price.
UPS: A little Doji closing on the bottom Bollinger Band with bands widening. I'm still taking that as bearish. The RSI and MACD still have a lot of room to move lower to support more price declines. 50 day MA and gap price support the next area we should test. After that, it's the bottom of the gap and the 200 day MA.
CLF: Stock might be lagging CAT and UPS in the structure of falling, pushing below the lower Bollinger Band, etc. So, it's now on the watch list because the structure has worked very well for the low risk short. Cluster support to test right below us in the 50 and 200 day MA and a prior price low.
From My Trading Desk: Today was comical because we got the bearish move down early from the sideways structure I highlighted yesterday. I fund myself getting giddy and feeling this could last forever. That happens when you get on a solid trading streak and become overly confident. I bring this up because we’re all human, but how we feel is almost 100% crap when it comes to forming smart money decisions. I also know when I feel that way, it’s time to take some chips off the table because I’m getting full of myself and that’s dangerous.
So, when the market opened lower and tested support at 1,040 we closed our position on BRCM and UPS and FAZ for decent gains. A little later in the day I decided to closed my bearish positions on JNK for a virtual break even and SRS for a loss. Neither were really doing anything and I had given them enough time to produce. SRS is still acting like a dog, so I want my cash for more productive looking trades.
Towards the close we re-shorted a half position on UPS. I still think the stock has lower price, but I want to see if the market needs to bounce a little. All in all, we are having another good month of trading, and I don’t mind taking a couple of losers off the table and moving to cash.
J.D. Rosendahl, Rosey