The stock market has struggled over the past three sessions, despite recent positive economic data including housing, manufacturing, and consumer confidence. As the S&P 500 closed sharply lower and under 1,000 on Tuesday, September 1, investors are starting to wonder if this is the start of a fall correction—and it may well be.
Last week, the big market movers fundamentally speaking were consumer confidence and housing data. We saw the first rise in consumer confidence after two dismal months, and I believe everyone was surprised and happy to see a number finally beating expectations. The reading came in at 54.1, posting a seven-point jump from July to August. It’s good news to see the people of America regaining some confidence in our marketplace. The S&P 500 spiked initially off that news, as seen in the chart below. The September S&P futures contract surged to 1,038, although the rally didn’t last long.
New home sales were also released last week, jumping 9.6 percent in July after a 9.1 percent surge in June. I think it is safe to say housing is beginning to return. The 433,000- annual unit pace is the best since September of last year, and also beat analysts’ expectations by roughly 43,000 units.
As far as other standard numbers from last week, jobless claims came in a bit better-than-anticipated, and all other major reports were fairly uneventful.
In data so far this week, the Chicago Purchasing Managers Index came in exactly neutral at 50, which was up from expectations and also up from the last two months. July pending home sales rose 3.2 percent in July, which was more than expected and up for a sixth consecutive month. The Institute for Supply Management’s factory index increased to 52.9, the highest level since 2007.
The big data highlight of the week is going to be Friday’s August employment report. According to a Bloomberg survey, the unemployment rate is expected to rise to 9.6 percent from 9.4 percent in July, and the consensus forecast for nonfarm payrolls is for a drop of 200,000. In my opinion, this report could easily shake things up. This morning, we saw data from ADP employer services showing U.S. companies cut 298,000 jobs in August.
One could look at the recent economic data overall as a positive sign for the U.S., and the market in general. However, the employment situation remains weak, and from a technical perspective, the charts aren’t so bullish.
Global Economy Not so Optimistic
Despite the bullish overtone to most economic reports this week and last, stocks have struggled in the U.S, and we can’t seem to get the global economy on the same page. Global stock indexes such as the Hang Seng have also failed to build on any positive momentum. I think we could be headed for a deeper correction this month.
For the E-mini S&P, I see support near 990 – 985, and a breakdown through 980 could be cause for a very major downturn. Reaslistically, if the market can hold 990, buyers may return. But we still have more key news coming this week.
There are various futures and options strategies available to trade the market, and I would urge a phone call or an email regarding other ways to benefit from a further move to the downside. In addition to focusing on the S&P, I also actively advise clients on the energies, metals and grains markets and welcome any market-related questions you might have.
Tom Schweer is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at 866-317-9477 or via email at tschweer@lind-waldock.com.
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