Today the market showed some signs of losing momentum and it was the second of two down days in a row for the Dow Jones Industrial Average in over a month. Traders are set for summer doldrums associated with possible seasonal declines and technical analysis levels also show the overall market could be temporarily exhausted which could present new buying opportunities. Worries about the Fed tapering and reducing asset purchases in September have increased but it’s way too soon to stop quantitative easing, especially after the dismal jobs report that showed only an increase in 162,000 jobs in the month of July 2013.
If the Fed was going to taper in July, given the current labor participation rate. We would need over 2 million jobs for the month of August to bring us anywhere near the 6.5 percent the Fed has staunchly committed to and deflation could be a bigger short-term issue. The chances of tapering starting in September are less than 30 percent at the moment and mixed data will continue to drive Fed decisions over the next few weeks. This doesn’t mean there couldn’t be a few distribution days for the stock market after a strong summer of gains so far.
The outlook for equities is cautious but constructive as we look for new entry points. Leading sectors like housing, financials and technology broke short-term support levels which keeps us tuned to Japan as well as Europe for any signs of weakness. Watch carefully to see if the S&P 500 can stay above $164 if the intermediate term upward trend is still in tact. A close for the $SPY exchange traded fund below $168 would be a cautionary signal if buyers don’t step in.