Stocks Escape From Sinkhole On Friday

Stocks were in the red at the opening bell on Friday and they immediately set about sinking further. By 11:00 the Dow Jones Industrial Average was 150 points below Thursday’s closing level. The 10:00 release of the final reading on the July Thompson Reuters / University of Michigan Consumer Sentiment Index indicated a surprising surge to its highest level since 2007. Despite the good news, the major stock indices took their steepest fall of the day at 10:44. It could only mean one thing: the “T” word. On Tuesday and Wednesday, the Federal Reserve’s Federal Open Market Committee (FOMC) will be having a monetary policy meeting. Uh-oh! There have been too many upbeat economic reports. The taper is at hand!

During the course of Friday’s trading session, investors became less skittish and the major stock indices steadily advanced.

The Dow Jones Industrial Average (DIA) picked up 3 points to finish Friday’s trading session at 15,558 for a 0.02 percent advance. The S&P 500 (SPY) rose 0.08 percent to 1,691.

The Nasdaq 100 (QQQ) climbed 0.48 percent to finish at 3,076. The Russell 2000 (IWM) actually declined 0.54 percent to close at 1,048.

In other major markets, oil (USO) sank 0.98 percent to close at $37.21.

On London’s ICE Futures Europe Exchange, September futures for Brent crude oil declined by 52 cents (0.48 percent) to $107.13/bbl. (BNO).

August Gold Futures advanced by $4.40 (0.33 percent) to $1,333.20 per ounce (GLD).

Transports hit cruising speed on Friday, with the Dow Jones Transportation Average (IYT) accelerating 0.60 percent.

In Japan, stocks fell as the yen strengthened to 98.68 per dollar during Friday’s trading session in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (FXY). Although Japanese consumer prices rose 0.2 percent year-over-year basis in June, the increase was due to a spike in energy costs. “Core” consumer prices – excluding volatile food and energy prices – actually declined 0.2 percent year-over-year. The Nikkei 225 Stock Average sank 2.97 percent to 14,129 (EWJ).

In China, stocks declined after the government directed companies to close factories in 19 industries where overproduction has led to price-cutting wars. The move followed Thursday’s gloomy outlook from the nation’s labor ministry, which focused on industrial overcapacity. The Shanghai Composite Index fell 0.51 percent to close at 2,010 (FXI). Hong Kong’s Hang Seng Index advanced 0.31 percent to finish the session at 21,968 (EWH).

European stocks had another tough day on Friday. Although European Central Bank President Mario Draghi re-ran his old “ECB will do whatever it takes to preserve the euro” routine to finish the week with a flourish, it didn’t work. Even the euro itself spent the morning in the red and popped above Thursday’s closing level of 1.3277 per dollar in time for the close.

Of the 19 industry groups on the STOXX 600 Index, the automobile industry was identified as the worst performer. Daimler AG was down by more than two percent before the opening bell in New York on Friday. Peugeot Citroen was down by nearly as much.

The Euro STOXX 50 Index finished Friday’s session with a 0.06 percent advance to 2,741 – remaining above its 50-day moving average of 2,692. Its Relative Strength Index is 60.09 (FEZ).

Technical indicators reveal that the S&P 500 remained above its 50-day moving average of 1,644 after finishing Friday’s session with a 0.08 percent advance to 1,691. At this point, bears are hoping to see the formation of a head-and-shoulders pattern on the S&P chart. Its Relative Strength Index rose from 64.96 to 65.42. The MACD and the signal line have now assumed a level trajectory, suggesting that the S&P may be stuck at this level.

For Friday, five sectors were in the red and four sectors were in positive territory. The healthcare sector led the group, with a 0.65 percent advance. The materials sector trailed the group, with a 0.37 percent decline.

Consumer Discretionary (XLY): +0.32%

Technology: (XLK): +0.28%

Industrials (XLI): -0.33%

Materials: (XLB): -0.37%

Energy (XLE): -0.25%

Financials: (XLF): -0.10%

Utilities (XLU): +0.36%

Health Care: (XLV): +0.65%

Consumer Staples (XLP): -0.12%

Bottom line: The major stock indices clawed their way out of the red on Friday, as widespread concern that Wednesday could be the day that the Fed announces a September taper of its bond-buying program kept investors biting their nails.

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