August 20, 2017

Weekly Review/Preview

stated last week that we would most likely see a short-term reprieve in the major market stalwarts and that is indeed what occurred. During the prior week the market was able to reap exceptional gains, but unfortunately the Dow (DIA) and S&P (SPY) were not able to build upon last week’s advance.

For the week the Dow, S&P, NASDAQ and Russell 2000 finished the week mixed at -1.1%, -0.2%, 1.2% and 2.5%, respectively.

Fundamentally, the market should have moved higher as oil prices continued the trend lower as the market scalped another 4.7% off the price to finish the week at $123.77 a barrel.

Also, the financial sector received more positive news, this time from Bank of America which stated that it would not have to cut its dividend. This combined with the Fannie and Freddie news from the prior week helped to continue the push upwards.

However, the overall market and a few major sectors, namely the financial sector had pushed into an extreme short-term overbought state by the end of the trading day Wednesday. Even though the news remained positive the financials tanked during Thursday’s session and brought the entire market down with it. The 6.8% move lower would mark the largest one-day decline for the financial sector in over eight years.

Remember, the financial sector makes up roughly 20% of the S&P 500 (SPY) so a move this large would obviously have detrimental affects on the overall market.

Investors remain worried that the worst of the tight credit market still lies ahead. America’s banks have struggled to escape the cascading effects of paralysis in the debt markets and the decline in home values. Sales of previously owned homes declined in June at nearly double the rate that economists had expected, according to a report on the national real estate market Thursday.

“We are approaching a bottom, but we are not there yet,” said Michelle Meyer an economist at Lehman Brothers.

“The housing data still speaks of contraction and falling prices, so it’s tough to get excited about that,” said Joseph Battipaglia, strategist at Stifel Nicolaus.

Next week, brings the always highly anticipated employment report. July is expected to show another modest decline, but of course no one really knows.

On the technical side of things, I really don’t have much to contribute this week. All of the major benchmarks finished the week firmly in a neutral state. When probability is not on my side I wait patiently until the market gives me an edge and right now I just can’t find one.

Have great weekend!
Andy