Despite getting off to a solid start on Tuesday, the benchmark S&P 500 (SPX) closed lower for a fifth consecutive session, says Jon Markman, editor of Strategic Advantage.
The index finished at 3,735, a loss of 0.4%.
The good news is there was a successful test of the 3,702 support level late in the day, and a good rally back into positive territory. Unfortunately, that rally faded again in the closing moments.
The weak tape action is a bit of a conundrum. I was looking for a kickback rally toward 3,810, the previous inflection point for the S&P 500. That advance would have set the stage for a more spirited rally following the Federal Reserve meeting on Wednesday. The lethargy leaves bulls in a precarious position. If there is no rally today, I doubt that critical support at 3,702 will hold through the remainder of this week.
The next crucial support level is 3,509, a 50% retracement of the entire rally from the 2020 pandemic lows. In the interim, I will be watching to see how the benchmark behaves following the Fed meeting. Bulls need a rally beyond 3,810, and it must happen today. History is on the bulls’ side for the day at least. Bespoke Investment Group analysts report that when rates have been lifted by 50 basis points or more in the past, equities have ripped higher in the final 90 minutes of trading.
SA TradeView: We are currently flat. It was my intention to add a new position Tuesday, yet there was no discernible trend. My goal with TradeView is to make low-risk, high-reward transactions, as we did on Monday. Be patient. I expect to send an intraday update following the Fed meeting.
The Dow (DJI) declined 0.5% to 30,364.83. The Nasdaq (NDX) was up 0.2% to 10,828.35. Barring technology and energy, all sectors saw declines, led by utilities and consumer staples. The US ten-year yield advanced 11.7 basis points 3.48%, touching its highest level in over a decade. It’s a danger zone for stocks. West Texas Intermediate crude oil futures fell 2% to $118.44 per barrel.
Equity market breadth favored decliners five-three, and there were a stunning 2,542 new lows vs 59 new highs. There were no notable new highs, which I should note again is remarkable and rarely happens. While markets are bracing for a more aggressive policy tightening from the Fed, some analysts still believe that the Fed will stand by a 50-basis-point increase it has been hinting at over recent weeks.
A pair of sentiment indicators and the monthly report on producer prices were the key US data points on Tuesday. The PPI rose by 0.8% in May following a 0.4% gain in April, with energy prices up 5% and food prices flat. The National Federation of Independent Business' monthly sentiment index fell slightly to 93.1 in May from 93.2 in the previous two months. The Investor Business Daily's sentiment index, the first consumer measure for June, fell to 38.1 from 41.2 in May, the lowest since August 2011. Any reading below 50 indicates more pessimism than optimism.
In company news, FedEx (FDX) increased its quarterly dividend by 53% to $1.15 per share and reached a deal with shareholder DE Shaw to add two independent directors to its board. The parcel delivery company's shares were up 14.4%. Oracle (ORCL) said it expects growth in its cloud business to accelerate this year after the unit helped the business software maker report its strongest revenue jump in more than a decade and outpace earnings estimates for the fiscal fourth quarter. Shares were up 10.4%. Compass (COMP) and Redfin (RDFN) sank 10.6% and nearly 5%, respectively, after the online real estate platforms announced layoffs amid rising interest rates, which have started to cool the US housing market.