I hope all is well by you. This month’s outlook is later than usual because I took a breather (a few days off around July 4th). Interestingly, the financial markets did the same.
June was a positive month for stocks, breaking through the 4,300 level on the S&P 500 that I had been watching. This was even more impressive given that interest rates increased during the month, which is usually a negative for stocks.
However, since the end of June, stocks have taken a breather – dropping back under the 4,400 level on the S&P 500. While it is usually a good thing for stocks to take a breather after a strong up move, I am watching a negative divergence that has appeared. The chart below shows both the S&P 500 price and its relative strength (RSI). As you can see, when the S&P broke above 4,300 (yellow line) it had a nice up slope (green line). However, while the market was up sloping, the relative strength was down sloping (red line on lower chart). This negative divergence means the market is moving higher, while the underlying buying interest is declining. This divergence can resolve itself by either the relative strength improving to match stocks or stocks declining to match the relative strength. If this resolves positively, I would expect stocks to continue their climb up to the 4,650 level (blue line). Conversely, the downside for stocks would be back to the 4,300 level (yellow line).
The next 2 weeks could determine the direction. This week we get CPI (consumer price index) data and next week is the FED meeting. If CPI comes in lower than expected, the market likely continues higher. If CPI comes in higher than expected, then the market probably moves lower. Stay tuned.
Let us know if you have any questions.
July Calendar of Events (comments and additions for future months are always welcome)
- July is National Picnic and National Parks month – please enjoy being outside with family and friends.
July 1st Bureau of Internal Revenue (the IRS) founded in 1862– betcha nobody celebrates this birthday
July 4th Independence Day
July 11th My daughter Ryan’s birthday
July 23rd National Ice Cream Day - Breyers vanilla with Hershey’s chocolate syrup is my go-to
July 31st National Avocado Day – I sure do love a good avocado
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