General Market Update
Weakness in the semiconductor sector pushed the equity market to a slippery start with a gap down on Friday. What also contributed to the negative sentiment was China May Industrial Production number which fell to 17-year low. May retail sales rose to +0.5%, slightly below the expected number of +0.7%. University of Michigan sentiment number also came a tad lighter than expected at 97.9.
The real bright spot on Friday was the US Industrial Production and Capacity Utilization report for the month of May. Industrial production rose 0.4% MoM, and capacity utilization came at 78%.
Source: Federal Reserve Board chart @fxstreet.com
Source: Federal Reserve Board chart @fxstreet.com
The Federal Reserve’s monthly index of industrial production and the related capacity indexes and capacity utilization rates cover manufacturing, mining, and electric and gas utilities. The industrial sector, together with construction, accounts for the bulk of the variation in national output over the course of the business cycle. The industrial detail provided by these measures helps illuminate structural developments in the economy.
The production index measures real output and is expressed as a percentage of real output in a base year, currently 2012. The capacity index, which is an estimate of sustainable potential output, is also expressed as a percentage of actual output in 2012. The production indexes are computed as Fisher indexes since 1972; the weights are based on annual estimates of value added. The rate of capacity utilization equals the seasonally adjusted output index expressed as a percentage of the related capacity index.
While the stock market likes to see strong economic growth, the bond market prefers more timid growth that limits the inflationary pressure. The Federal Reserve watches this report closely and takes it into account, when it sets the interest rate. This report along with the CPI and PPI data released last week lead us to believe that there will no rate cuts in the FOMC meeting this week.
Market Posture is Still Defensive
While S&P500 index is sitting well above the 50-day moving average, sector analysis shows that it is still the defensive sectors that remain strong. A good gauge of internal sector strength is the percentage of stocks that are above their 50-day moving average. Consumer Discretionary and Information Technology are still lagging behind the defensive sectors like Consumer Staples, Health Care and Utilities.
Source: Barchart
The defensive posture is also supported by Fear and Greed Index, constructed by CNN Business.
Source: CNN Business
The defensive posture is taken as a bullish indication in our analysis. QuanTimer market stance is bullish at present. Please review our market outlook in an earlier post here -
While we remain bullish in S&P500 and Nasdaq broad indices, we also try to protect ourselves with stop loss and tailing stop loss orders. In one of our base models that is based on QQQ we are currently holding QQQ, and the stop loss is set at 177.99. The position was opened on June 4th at 171.98, and QQQ closed on Friday at 182.64.
Terms of Use/Disclaimer
The information presented here is the property of QuanTimer and is protected by applicable copyright, intellectual property laws. No permission is granted to the readers of this forum to copy and distribute the content without prior written consent of QuanTimer. The analyses provided by QuanTimer are believed to be accurate and written in good faith, but no representation or warranty is made as to their accuracy. We do not guarantee profitability of any investment strategies discussed in our blog posts, or their suitability for your purpose. You bear the sole responsibility for your investment decision.
