Economic data fails to measure up to expectations

I continue to hear the theme from Jaws 2 in my head the last few months. The trailer where they say, “just when you thought it was safe to go back into the water….” and the heavy base of the music plays to scare you. Maybe the market should come with a similar warning these days? Each time we make progress is developing a trend the opposite side steps in to keep the market in the current trading range. Volatility index moved back above 13 intraday, but failed to hold the move higher as some buyers stepped in late in the day. By far not a fearful move, but enough to get the attention of investors early in the trading day. Small caps fell more than one percent intraday and continues to test near the 200 DMA. The yield on the ten-year bond dips to 2.15% falling another six basis points with the bond continuing to make upside gains on the shift in momentum. TLT cleared the $123 resistance and only the 200 DMA is overhead to prevent a move to $129 level. If that takes place the conditions in the markets would definitely trend lower. Catalyst for the move today? ISM manufacturing and Markit PMI data both disappointed relative to the temperature for the economic outlook. From my view the market continues to confirm that a lack of direction is driven by a lack of clarity… thus, patience is the name of the game.

Banks were lower on the as the economic climate is leaning towards speculation they Fed will hold off at the September FOMC meeting on hiking rates. I am not convinced we can make that jump just yet, but the speculators believe it and that is enough for the initial emotions to take hold. If you are willing to hold through the volatility the sector is still one to like looking forward.

Crude oil moved to $45.40… that opens the door to test the March lows. The short side trade is what we discussed last week when the price bounced on the larger than expected drop in crude. That is playing out and unless something changes near term the downside remains in place. XLE showed the stocks resuming the downside move as well. Don’t fight the trend regardless of what you think may be true.

Social media (SOCL) fell 1.3% as technology sector remains under pressure from the sellers. Networking (IGN) was down more than 1% as well on the day. Utilities (XLU) continues to attract money as rotation looks for safer ground. Bonds rallied as money rotates toward safety and REITs (IYR) moved towards a break of the downtrend line and bottom reversal on the moves higher.

Today technically changed nothing. Fundamentally put a damper on the July data points for the economy. But, no one is really paying attention to the fundamental data. There is still plenty to come this week with the jobs reports on Friday. This remains a cautious environment for risk and until the clarity of direction reveals the opportunities… I like cash and I am happy to hold it for now. We continue to take it one day at a time without prejudice.