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Stocks Flirt with Breakout at Range Bottom as China’s Slump, Fed Move in Focus

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June 9, 2015

U.S. stock averages were on track for a fourth straight losing session based on early weakness Tuesday. Chinese stocks fell after wimpy inflation data there, while Europe’s major equity indexes were down for a sixth straight day, the longest such streak since December.

Defensive positioning has gripped the broader stock market as a series of improved U.S. economic reports could strengthen the argument for a Federal Reserve interest rate hike yet this year.  But the other side of the story has legs, too. The broader stock market is about flat year to date, and the factors holding down stocks short term are upbeat factors for the longer-run health of the economy and by default, the stock market—improved hiring, rising consumer confidence, decent company balance sheets.  Still, the stock market could remain cautious into next week’s two-day Fed meeting.

SPX-Breaks-Out

FIGURE 1: FOUR IN A ROW?

The Standard & Poors (SPX) poked below the 2080-2130 range that had held for about a month through last week. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

China Conundrum. U.S. economic growth—and the Federal Reserve’s reaction—remain largely an outlier when you look around the globe. Problem is we are not in isolation. Europe matters. China matters. And in the latest batch of data, inflation in China in May increased at a slower-than-expected pace with consumer prices rising 1.2% year over year, shy of  industry analyst estimates for a 1.3% increase. Producer prices plummeted 4.6% from a year earlier, the 38th straight month of decline.  A day earlier, China reported exports for May fell and imports declined at the sharpest rate in three months.

Job Market Microscope. Only minor reports are on the U.S. slate Tuesday, but one has increasingly drawn Fed and Wall Street attention. The April Job Openings and Labor Turnover (JOLT) survey is due out at 10 a.m. Eastern. The survey, known to be a favorite of Fed chief Janet Yellen, includes details on the state of the jobs market not highlighted in the monthly payrolls data, analysts say. The labor turnover report focuses on job availability, along with net hiring and separation trends (retirement and so on). What matters most with this report is “voluntary quits,” meaning workers who have the confidence to leave a job for what they believe will be a better one.

Rethinking Your Pose? Yoga apparel maker lululemon (LULU) was an early gainer Tuesday after beating estimates on its top- and bottom-lines. LULU earned $0.34 a share in its recent quarter, beating Street estimates by a penny, while sales climbed 10.1% from the year-earlier quarter to $423.5 million. 

Good trading,
JJ
@TDAJJKinahan

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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