Dow Jones Fails At The Fifty, Again

The Dow Jones Industrial Average (DIA) and S&P 500 (SPY) both made strong attempts to breach their respective 50 day moving averages again in light, pre-Holiday trading but failed at the close of the first trading day of the new month.

For the day, the Dow Jones Industrial Average (DIA) hit a high of 15,083 in intra-day trading, above both the 50 day moving average and the psychologically important 15,000 level, but was unable to hold higher ground as it drifted lower to close at 14,974. Nevertheless, the index gained 0.44% or 65 points for the day.

The S&P 500 (SPY) tracked a similar course, trading as high as 1626, above the 50 day moving average and the psychologically important level of 1600, only to fade into the close at 1614.

The day’s moves are significant because the 50 day average is typically strong resistance and needs to be breached for a meaningful uptrend to continue.

Significant resistance also lies at the recently broken trend line as depicted below on the S&P 500 (SPY)

The S&P 500 (SPY) needs to reclaim this well established trend line before a meaningful new uptrend can be confirmed.

On a technical basis, the Dow Jones Industrial Average (DIA) and S&P 500 (SPY) remain mired in negative territory with declining momentum and below significant resistance levels.

On a fundamental level, headwinds are being generated by confusion over “Fed Speak” and whether or not it’s a “taper on” or “taper off” day, the ongoing slowdown in China and a mixed series of economic data points that tend to cloud the water in significant ways.

Japan remains a basket case with ongoing Abe-Economics-induced volatility and collapsing car sales (down 15% from last year) but even there the news is mixed as today’s Tankan Business Sentiment Survey came in better than expected.

In China, HSBC reported a June PMI for China at 48.2, in contractionary territory, while the country’s official PMI for June printed at 50.1, just above the contraction zone and down from May’s 50.8.

The Shanghai Composite (FXI) continues in its bearish hue, now down 18% from its yearly high set last February.

Closer to home, U.S. GDP was revised downward last week to 1.8%, below expectations and previous estimates, and just above flat line growth. Today’s economic reports were mixed with June Markit PMI registering 51.9, down from last month’s 52.2, June ISM at 50.9, up from May’s 49.0, and May construction spending at 0.5, up from the previous reading of 0.1 but widely missing expectations.

Bottom line: The Dow Jones Industrial Average (DIA) and S&P 500 (SPY) have made an impressive comeback after bouncing off late June’s closing lows. Nevertheless, it is too early to call a resumption of the uptrend as, so far, the recent move is still just a bounce from oversold levels. This week’s economic reports and ongoing “Fed Speak” will determine the next directional move for major U.S. stock indexes.

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