Category: Dr. Duke's Blog
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The Standard and Poors 500 Index (SPX) opened slightly higher this morning, but began a steady climb late morning that continued until only a few minutes before the close. SPX closed at 3026, up 22 points on the day and setting a new all-time high in the process. SPX opened the week at 2982 and tacked on 1.5% for the week.

Trading volume in the S&P 500 companies continues to run lower than average. It managed to break the 50-day moving average (dma) yesterday, but only came in at 1.7 billion shares today, under the 50 dma at 1.9 billion shares. The markets are setting new highs, but these are fragile highs. Lower trading volume on these new highs suggests a lot of money is on the sidelines. Traders are waiting on the resolution of some key issues: China trade and the Fed’s decision on interest rates.

The Russell 2000 Index (RUT) continues to lag behind SPX and NASDAQ. Russell opened the week at 1550 and closed at 1579, gaining 1.9% this week for a strong showing. RUT took quite a tumble on Thursday, but regained all of that today. Russell never fully recovered from the December correction lows last year. RUT’s all-time high was set at 1741 in late August, 2018. Russell remains over 10% below that all time high. The recent high was set in early May at 1615, about 2% above today’s close. Russell’s bearish inclination is a significant hindrance for a strong bull market. Until these high beta stocks start to accelerate, the bulls are clearly not on a strong “risk on” path.

The NASDAQ Composite index broke its May 3rd high of 8164 on July 10th, but broke down below that support level last Friday. NASDAQ opened above that level on Monday and traded up 1.9% to close today at 8330. Today’s new all-time high for the NASDAQ Composite broke the previous high from this past Wednesday, which, in turn, had broken the high from July 15th. NASDAQ’s price chart pattern is much stronger than Russell’s and even slightly stronger than SPX.
 NASDAQ’s trading volume is low, even weaker than that of the S&P 500 index, having remained below its 50 dma since the July 4th holiday. It is hard to get too excited about strong market days like today when trading volume is downright dismal.

The prospects of a rate cut coming out of next week’s FOMC meeting appears to be the primary bullish motivation for this market. Public interviews by Powell and other FOMC members a couple of weeks ago had convinced many market analysts that a rate cut was on the table for next week’s meeting. That pushed the indices higher. The discussions documented in the last Fed meeting’s minutes (last week’s Beige book) seemed to throw doubt on that prospect and that weakened the market last week. Did today’s GDP number of +2.1% encourage the bulls that a rate cut might be probable after all? Is that what drove today’s bullish run?

The bulls are still driving this market, but anticipation of the restart of the China trade negotiations on Tuesday and the Fed announcement on Wednesday is on everyone’s minds. Therefore, my outlook remains unchanged. Trade with expectations of a sideways to slightly bullish market, but be prepared to hit the stops earlier rather than later. More conservative traders would be well advised to wait until after the Fed announcement on Wednesday before moving additional capital into the market.