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The S&P 500 inched up 0.29% to an intraday high of 2,132.82 on Monday, 1.9 points from the all-time high, but was unable to hold onto the day’s gain as the markets were anticipating good earnings reports for later in the week. The U.S. dollar index, a weighted geometric index of the value of the U.S. dollar relative to a basket of six major currencies, tumbled 1.00% to an intraday low of 97.178 on Tuesday and took the S&P 500 along with it, after Bloomberg released its survey of 34 economists showing 71% of respondents thought Greece would be forced out of the euro region by the end of 2016.
The argument that the euro currency will be stronger without Greece is back in the front burner. In early April, Berkshire Hathaway chairman and CEO Warren Buffett told reporters, "If it turns out that the Greeks leave, that may not be a bad thing for the euro.”. Currency traders were unable to push the EUR/USD currency pair below the 1.08 dollars per euro support level, and might have decided to cover their short positions.
Earnings reports from S&P 500 mega cap companies including IBM[NYSE:IBM], Apple [NASDAQ:AAPL], Microsoft [NASDAQ:MSFT] and 3M[NYSE:MMM] disappointed the market as the companies missed Wall Street’s earnings expectations or gave outlooks below the market view. The companies blamed the strong dollar as one of the reasons for revenue shortfalls. The second quarter S&P 500 earnings have been mixed so far, with 74% of companies beating analysts' profit expectations but just 52% surpassing revenue expectations, according to Thomson Reuters data.
Economic outlooks in both China and the U.S. are wobbly and tilting to the downside. On Friday, the preliminary China Caixin purchasing managers index (PMI) surprised markets as it dropped to a 15-month low in July to 48.2, below the 49.7 forecast from a Reuters poll. The number below 50 signals the activity across the business sector is contracting.
The U.S. Commerce Department said on Friday that new U.S. single-family home sales fell in June to a seven-month low and May's sales were revised sharply downward. Weak U.S. economic data could send the U.S. 10-Year Treasury Note yield to below 2% and the Fed could be running the risk of losing control of bond yields.
As of July 24, there are 231,593 short positions of S&P 500 Futures, (CME:SP), traded on the Chicago Mercantile Exchange (CME), by asset manager/institutional and leveraged funds, compared to about 264,846 short positions last week, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. The long positions jumped to 328,252 from 122,930 and hence the net long positions has increased by about 238,573 contracts, where contracts of S&P 500 futures are traded in units of $250.00 x S&P 500 index.
We already anticipated the net long positions to increase when the CFTC reported its COT data on Friday, as the hedge funds might have been caught by a surprise market run up last week.
For the week, the S&P 500 tumbled 2.21% and closed at 2,079.65 on Friday, the U.S. dollar index closed at 97.346 on Friday, down 0.66% while the U.S. 10-Year Treasury Note yield was quoted at 2.262% on Friday, down 3.62%.
From our technical viewpoint, the S&P 500 pulled back sharply as the index was unable to break out the technical head resistance of the ascending triangle at 2,120. The S&P 500 is now supported by the 2,080 level and the near-term supports are between the 200-day SMA and the 23.6% Fibonacci retracement level, or about 2,060.
S&P 500 Summary: +1.01% YTD as of 07/24/15
Barclay Hedge Fund Index: +3.33% YTD
Outperforming Sectors: Healthcare +9.23% YTD, Consumer discretionary +9.13% YTD, Information technology +2.61% YTD, Consumer staples +2.01% YTD and Financials +1.52% YTD.
Underperforming Sectors: Telecommunication services –1.85% YTD, Industrials –6.29% YTD, Materials –7.41% YTD, Utilities –10.51% YTD and Energy –13.02%
YTD. |
