Economic Data Produces Some Buying & Some Selling

The market started the day with selling, but the buyers did show up and push the broad indexes back into positive territory to start the week. Why the uncertainty? Same as we have discussed the last month… no clarity about the future growth in the economy. Just look at the economic data released today for the latest display of uncertainty about the economy. Today’s data points included:

  • Personal income up 0.4% for April versus no growth in March. Consumer spending fell as savings rose.
  • Consumer spending 0% for April versus up 0.5% in March.
  • Core inflation up 0.1% for April versus up 0.1% for March… Fed wants this at the 0.15% range plus.
  • Markit PMI 54 in May versus 54.1 in April. Flat.
  • ISM Manufacturing for May 52.8% versus 51.5% for April. Nice surprise upside.
  • Construction spending up 2.2% for April and up 0.5% for March. Nice gain.

Not the increase some wanted as the economic data continues to be mixed… no clear indication growth is picking up, but then slowing isn’t in the reports either. When it is all said and done the outlook for growth remains in the 1.5-2% range. Earnings growth didn’t exist in Q1 and revenue numbers continue to decline not giving much hope for the growth in earnings coming from sales versus cuts, M&A or share buybacks. No organic growth to speak of on a large scale only bits and pieces providing positive growth stories. Overall… clarity about growth, to me, remains the key issue for the intraday volatility sparked by buyers and sellers without either having enough conviction to drive the trend in either direction.

Interest rates climbed 10 bps to 2.19% on the ten-year treasury bond. The belief that the Fed will start pushing interest rate higher remains one of the primary drivers in the bond sector. We posted a entry on TBT (ProShares UltraShort 20+ Year Treasury Bond ETF) based on the setup from last week. That entry was hit today and moved enough to push to the stop to a level that should this reverse we forfeit little in terms of a loss. This opportunity should play out further as the week progresses.

Crude oil rose to start the day, fell, rose again into the close to essentially break-even on the day. This remains volatile as it lacks direction as well. The lack of conviction on either side of the trade continues to frustrate investors. The frustration has shown in the decline in the energy stocks (XLE) to break support at $80.50 last week. The sector started higher today, but it failed to hold the gains and closed near even on the day. This remains another sector with volatility and little direction near term. Still not willing to step into the snake pit currently.

The dollar (UUP) resumed it’s upward trek as the yen (FXY) fell against the buck. The euro resumed the move lower as well against the dollar and gold gave up it’s profits on the day as the dollar rallied back. The key is to remains short yen and euro and long the dollar for now. Gold has no interest to me until the dollar settles relative to the upside move.

Looking at the charts of the major indexes you can see the lack of commitment from either side on direction. More consolidation within a narrower range and holding above the 50 day moving average. Technically the charts are still in uptrends and we have to go with that as the bias despite what we may think, believe or know. It isn’t easy to when you want to tell the market what it should be doing versus following what it is doing. Remember the market doesn’t care what you think or believe… it will do what it does with or without your permission. Follow the trend it is in control until it breaks.

There is plenty of economic data out this week and it will shed some light on where we stand currently. I am not holding my breath for it to be a determining factor on direction up or down. As seen above with today’s released data it is not good enough to spark a sustainable rally, nor is it bad enough to spark sustained selling… Refer to a chart of the intraday activity for today on the S&P 500, NASDAQ and Russell 2000 indexes. That defines the investors conviction currently. Patience is vital as we continue to take it one day at a time.