US Stock Decline Resumes

Last week, the S&P500’s recovery ended abruptly. Although the decline was not super large, it was large enough to reverse the prior bounce. The large cap index closed the week down 1.24%. Volume was modest, and volatility did not change much—the VIX index continued to hover around the mid-teens.

In macro economic news, the results were mixed. While core consumer inflation was hotter than expected, core producer inflation was lower than predicted. Retail sales missed; both headline and sales ex-autos disappointed. The Philly Fed survey also missed. Housing starts missed, and import prices were higher (ie. worse) than expected. On the bright side, business inventories grew more than anticipated; initial jobless claims were better than predicted. The Empire State manufacturing survey beat consensus estimates. Industrial production and consumer sentiment also beat their respective projections. So all in all, the US economy ….. as it has for many years now …. continues to limp along at very modest growth rates.

In terms of technical analysis, the S&P500 is still….despite this most recent decline (last week and last month) still extremely overstretched. The closing price last Friday remained above the 50 day moving average. The 200 day moving average, which is still way below the closing price, remains solidly upward sloping….which is a strong bullish indicator. And our Simply Rule is in no imminent danger of changing its signal; even with last week’s modest decline, the S&P500 is still in a bullish mode. The S&P would have to fall by about 5%…and remain there (or lower)….in order for our Simple Rule to switch to a bearish mode. That represents well over 100 points on the S&P.

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