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The Environment is Ripe for a Transition.

The S & P 500 reversed course erasing a drop of more than 1% on speculation that Greece’s crisis would be contained.  At one time, this marquee index violated the pivotal 200 day moving average, a level that has only been broached once since 2012.

Many are now beginning to note the carnage beneath the surface as the popular averages do not reflect the damage.  The transports—or companies that should be beneficiaries of lower energy costs—are down 12%.  Energy is down about 25% for the past year.  Technologies are now negative.  And then there are the utilities down about 14%.

Many times I have commented about the undue influence of ETFs and technology based trading, strategies that are based upon momentum and capitalization.   Has the strategy run its course and will there be rotation back into value?  Recently I have read numerous reports suggesting the environment is ripe for a transition.

Unfortunately one does not know when a transition has commenced.  Based upon firsthand experience, when such transition commences, gains are significant.

Tonight is the start of second quarter earnings season.  Little has been discussed and expectations are low as profits are expeted to contract by 6.5%.   Will the upcoming results impact have a significant impact upon averages?

Today the Minutes from June’s FOMC meeting are released.  Will there be any additional insight about the timing of any potential change in monetary policy?

Last night the foreign markets were mixed.  London was up 0.88%, Paris up 1.16% and Frankfurt up 0.88%.  Japan was down 3.14% and Hang Sang down 5.84%.

The Dow should open moderately lower following yesterday’s strong technical reversal as the S & P 500 bounced off the pivotal 200 day moving average.  China was crushed again last night and is now down about 30% in three weeks.  Approximately one third of its companies have stopped trading.

About nine months ago the Chinese market entered into a relationship with the Hong Kong market, the advent of the gargantuan 125% surge.  I rhetorically ask how much of China’s advance was the result of western momentum monies, momentum monies that is now fleeing and  will argue the decimation would be even greater if a 1/3 off its companies were not halted.

As indicated above, Europe is up on hopes a Greek resolution, whatever that resolution may be.

The 10-year is up 9/32 to yield 2.23%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.