Markets Content to Trade Sideways

The term ‘summer swoon’ is being used to describe the current action in the broad markets this week. Call it what you want this week the markets have been struggling to find any direction, up or down. The “selling” many have refereed to this week was a drop of 1% Monday through Wednesday and Thursday it recouped half of that. That is not selling it is investors looking for a catalyst in direction. This process has been in play the last four weeks. Since breaking above the May highs the overall market has been attempting to break higher, but can’t find the right combination to push through. Last weeks attempt to make a run higher has faded this week. What does it all mean? Nothing more that the markets are extended on the upside, earnings data has been released for the most part, economic data is out and none of it was good enough or overwhelming enough to create momentum to push the markets appreciably higher. Not bad, just taking a break.

When you look at the charts and the fundamental data there is nothing to hate, but then there is nothing to really love either. This puts us in a wait and see mode. After all it is August and the summer is coming to a close and it is time to get those last minute vacations in and take some time to relax. What better time to do it than when the market activity is dull?

The S&P 500 index is setting up a head and shoulder pattern, but it has plenty of work to do to complete the process. Breaking down the sectors in the index we find more of the same. Both consumer staples (XLP) and consumer discretionary (XLY) are moving sideways. The retail sales reports out yesterday were anything but motivational. They showed horrible results among the teen retail sector, which reflects the lack of jobs this summer. The consumer has slowed in spending and that is not a positive for the economy. Auto sales have been the one bright spot for the sector.

Basic materials (XLB) made a follow through move on the upside on Thursday with a 1.5% move through resistance. The metal are moving on economic data in Asia and Europe improving. Likewise, industrials (XLI) have moved back near their recent highs. Utilities have found some buyers to bounce off the recent lows, but have now turned sideways in a defined trading range. Technology (XLK) is trading near the highs as well, but can’t seem to find the catalyst to breakout. Financials (XLF) have struggled with the recent round of government lawsuits and charges against the banks. Nothing like adding insult to injury when it comes to the regulations and fines imposed. Only five years after the fact are we going to address what happened in 2008? I still like the long term upside of the financials, you will just have to live with volatility.

The global markets are where we have seen the most promise of late. Europe (IEV) is breaking to a new high. Asia found some footing of late with China (GXC) regaining a positive trend. Australia (EWA) made a nice reversal on Thursday after cutting their bank rates. Mexico (EWW) is on the move higher again as well. Digging into the global markets is worth the energy and effort currently. Rotation has been in process, but it is now accelerating.

The goal is to take what the market gives without forcing your positions. If this is the summer swoon, take a break have a cold beverage and enjoy the end of summer. If the broad markets decide to pullback, correct or just trade sideways, look for the resulting opportunities going forward.

Relax and enjoy your weekend!