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%.