Stocks, ETFs Send Mixed Messages

Major U.S. stock indexes and ETFs send mixed messages with difficult week ending in Friday rally.

U.S. stock markets had been in steady decline until Friday’s unexpected rally brought the S&P 500 (NYSEARCA:SPY) into slightly positive territory for the week.

On My Wall Street Radar

chart courtesy of StockCharts.com

In the chart of the S&P 500 (NYSEARCA:SPY) the technical indicators confirm the mixed messages emanating from U.S. stock indexes.

RSI is above 55 and climbing which indicates positive relative strength while daily MACD has gone negative which denotes short term declining momentum

The index bounced off support at its 50 day moving average and on Friday climbed back into recent resistance at the 1360 level.

A break above 1360-1370 is required to confirm a new leg up and support continues to be found at the 1310 level.

So we continue to move sideways within this trading range extending back to early June that has been punctuated by significant volatility in both directions.

View From the Summit

U.S. and global economic news was rather glum last week.

Early on, Spanish and Italian bond yields dropped but then resumed an upward trajectory towards week’s end.

Weak Chinese data was the big news with GDP slowing in Q2 to 7.6% which is the lowest pace in three years. While still strong growth by developed nations’ standards this number is down from last year’s 9.5% and missed analyst’s expectations. Retail sales and industrial production also missed estimates.

Nearby Singapore’s GDP dropped into contraction teterritory, falling 1.1% on an annualized basis in the second quarter compared to last quarter which logged a gain of 9.4%.

The People’s Bank of China has been aggressively cutting interest rates with two reductions in the past month in an effort to stabilize declining growth rates.

China remains a large driver of economic growth around the world, and while the country is still growing at a significant clip, declines in China’s growth rates will be felt in both small and large nations, alike.

Closer to home, the National Federation of Independent Business Optimism Index dropped to 91.4, its lowest level since October, 2011. The report cites that the number is a clear indication of slow growth and year to date gains have been lost as only one of the ten conditions showed improvement. 23% of owners cite weak sales as their biggest problem with taxes (21%) and unreasonable regulations and red tape (19%) rounding out the top three. NFIB Report

U.S. consumers aren’t feeling much better as the Reuters/University of Michigan Consumer Confidence Index dropped to 72 for July, missing expectations and hitting the lowest level for 2012.

Scandals continue to erupt with another commodities broker shutting down, this one in Iowa, due to alleged fraud by its owner, and the LIBOR scandal continues to unfold around the world as the investigation stretches to major banks beyond Barclays and reports indicate that the Federal Reserve learned about the alleged manipulation of the important interest rate as early as 2008.

Expect LIBOR to be a mushrooming storm as the important interest rate is the basis for more than $350 Trillion of securities and interested parties now include the U.S. Congress and multiple states attorney generals along with European officials.

Nevertheless, Wall Street rallied hard on Friday with the Dow Jones Industrial Average (NYSEARCA:DIA) gaining 203 points, 1.6%, the S&P 500 (NYSEARCA:SPY) adding 1.7%, the Nasdaq 100 (NYSEARCA:QQQ) jumping 1.6% and the Russell 2000 (NYSEARCA:WIM) adding 1.4%.

The catalyst for the rally was reported to be JP Morgan’s profit report and gain of 6% on the news in spite of its recent “London Whale” trading losses that continue growing.

The Eurodollar (NYSEARCA:FXE) rebounded slightly on Friday to $1.2249 but remains locked in its recent downtrend as worries over the European debt crisis continue. On a technical basis, the currency remains on a “sell” signal according to many indicators.

The Week Ahead

The week ahead brings major earnings reports from the likes of Bank of America, Goldman Sachs, Citigtroup, Google, IBM and Microsoft. Newspaper conglomerate Gannett, and consumer giants Coca Cola, Johnson, Yum and Johnson report, along with tech heavyweights Intel, Yahoo, Qualcom, Microsoft and IBM.

Fed Chairman Ben Bernanke’s words will be finely sliced and diced as he testifies before finance committees on Congress with the Senate Banking Committee and House Financial Services Panel on Tuesday and Wednesday. Market participants and analysts will be closely watching for hints of more monetary easing planned for the near future.

It will also be a heavy week for economic reports with June Retail Sales and July Empire State Index coming on Monday, June Consumer Prices, Industrial Production and Homebuilders on Tuesday, June Housing Starts and Fed Beige Book Wednesday, and weekly unemployment claims, leading indicators and Philadelphia Fed round out the week’s reports on Friday.

Bottom line: Fundamental factors and technical indicators point to more choppy and volatile action ahead.

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