Consolidation is what happens when stocks ‘take a break’ before their next move higher and the S&P 500 below has been doing that since early April. The technicals are pointed higher longer-term but there may be one more push lower next week before we close out the month. If you examine the chart below you see resistance at 4179 (B-wave top) that was tagged on Friday. If the S&P can push above this level early next week then new highs are next and we begin trending into the summer months. And if the S&P is below 4100 early next week, then there is one more leg lower towards the 50% Fibonacci retracement level around 3976. I would expect that this would complete a three leg pullback labeled A-B-C in the chart.
Earnings season is over so the market is being left to its own devices right now. The technicals are still positive despite an uneven recovery while Fed policy remains unchanged. Once we clear up this consolidation, we should trend higher with a recovering economy.
Chart of the Week!
Economic & Central Banking Snippets
- Housing starts in April totaled 1.57mm, well below the estimate of 1.7mm and down from 1.74mm in March.
- Existing home sales in April totaled 5.85mm, below the estimate of 6.07mm and down from 6.01mm in March. The NAR commented “Home sales were down again in April from the prior month, as housing supply continues to fall short of demand.”
- The Federal Reserve’s balance sheet rose another $92b on the week to a new record high of $7.92 Trillion.
- The May composite Purchasing Managers Index (PMI) for the Euro zone rose to 56.9. However, factories continue to suffer supply shortages which curb productivity into an economic recovery. In the U.K., PMI readings hit their highest level since the survey began in 1998 and retail sales surged.
Macro Snippets
- WeWork said it lost more than $2 billion in its first quarter as its office-sharing spaces went largely unrented. The company reported a net loss of $2.06 billion on revenue of $598 million. (Investopedia)
- U.S. companies have authorized a record amount of share buybacks this year, a bullish sign for markets amid volatility.
- Suppliers and logistics providers say distributors are facing shortages of everyday products. There is also difficulty in finding workers and surging transportation costs as companies re-open post pandemic. (WSJ)
- Ford plans to mount a price war in the next 18 months on its electric pickup rivals. The price of the new F-150 electric pickup at $40,000 will undercut trucks electric trucks manufactured by Tesla and GM. And purchasers may also qualify for a $7,500 federal tax credit to further reduce the amount consumers pay.
- Victoria’s Secret owner L Brands is getting customers to pay full-price for its products again, another sign of recovery in the battered retail sector.
- Natural gas is America’s No. 1 power source. Its new challenger: batteries. A decade ago, natural gas displaced coal as America’s top electric-power source, as fracking unlocked cheap quantities of the fuel. Now, natural gas finds itself threatened with the same kind of disruption. Only this time it is from cost-effective batteries charged with wind and solar energy. (WSJ)
That is all for now and thank you for being a subscriber!
Regards,
Paul J. McCarthy, III
President – Kisco Capital