Stocks rose in the morning and were flattened in the afternoon, notes Jon Markman, editor of Strategic Advantage.
Insight
Bulls put up a spirited defense on Tuesday but ultimately they lost minor support for the S&P 500 (SPX) at 3,920. The benchmark index closed at 3,908, a loss of 0.4%. The weaker close means bulls are still in full retreat with no reprieve on the horizon. The rest of the week is full of speaking engagements by Federal Reserve officials. Hawkish commentary from the Fed started this spiral lower. The only positive is the benchmark is now deeply oversold. The S&P 500 has been down eight of the past 11 days. At some point soon, bears are likely to take profits, resulting in a short-covering rally.In the interim, the next likely downside target for the S&P is 3,720, the small gap caused by the July 15 rally. Beneath that level, the June lows at 3,640 are in play. I would sell every rally until the July 15 gap is filled. The first important resistance level for the benchmark remains 4,100.
Strategic Trade
We are long the ProShares Ultra Short S&P 500 (SDS) from $44.29. The SDS closed at $46.41, up 0.8%. Overall gain so far is 4.8%....Set up to sell all at target $51.90 lmt gtc. Set stop at $43.05 stp.Backstory
The Dow Jones Industrial Average (DJI) fell 0.5% to 31,148.07 and the S&P 500 slipped 0.4% to 3,908.55.Real estate and utilities were the top gainers, while communication services and energy were the worst performers. West Texas Intermediate futures rose less than 0.1% to $86.83 a barrel.
Breadth favored decliners three-one, and there were 669 new lows vs 37 new highs. The leaders were Sendas Dsitribuidora (ASAI), YPF Sociedad Anonima (YPF), Euronav NV (EURN), Frontline (FRO), and Scorpio Tankers (STNG). This is the epitome of cats and dogs; no leadership. EURN, FRO, and STNG are all oil and gas ocean shipping companies, which is interesting as this up move could persist.
The US two-year yield jumped 10.3 basis points to 3.50%, and the ten-year rate soared 14.9 basis points to 3.34%, which is very unfriendly to growth stocks.
The Institute for Supply Management's US services index rose to 56.9 in August from 56.7 in July, a surprise gain compared with expectations for a drop to 55.2 in a survey compiled by Bloomberg. The print contrasts with readings in regional Federal Reserve bank measures and an S&P Global index that indicated a deeper slowdown in the sector.
All the details in the ISM report are "encouraging," and "consistent with our view that the economy was not in a recession in the first half of 2022, nor is it heading into one in the second half," Jefferies economists Thomas Simons and Aneta Markowska said in a note.
Famous last words?
The ISM index averaged 57.2 in the first half, with July and August data showing that activity picked up during the beginning of the second half, according to the note. "There are hardly any spots to poke holes in this month's report," the economists added.
The probability of a 75-basis-point increase in interest rates later in September reached 72% on Tuesday, compared with 57% on Friday, according to the CME Group's FedWatch Tool.
In company news, Enphase Energy (ENPH) said it expanded its global partnership with BayWa r.e., a renewable energy company, to distribute Enphase's IQ7 microinverters and IQ batteries for solar systems in Germany, Belgium, the Netherlands, and Luxembourg. Shares of Enphase jumped 4.9%, the second-highest in the S&P 500.
The best performer on the index was Rollins (ROL), whose shares advanced 6.1% after RBC Capital upgraded the stock to outperform sector performance while reiterating its $40 price target. Good company and a good stock.
