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Market Update - July 8, 2016

Economic Comment

It’s Friday and that’s means the monthly job’s report. The forecast for June was that 175K jobs were added and the number has come in at a huge surprise increase of +287,000! As weak as May was, (forecast 164k, number was 38k) is how big a miss on the upside this number was. The ADP report on Thursday kind of hinted that there was a bounce coming, (ADP 172k vs 159k) in the government’s numbers. We have had an interesting two weeks after Brexit, so let’s review our indicators.

Bullish Percent’s

(Data source Dorsey Wright, see definitions at the end of this report)

10 Week Bullish Percent (Short-term) Brexit caused this short-term indicator to plunge to 30%, which is very oversold. Last weeks’ rally should have been no surprise and this indicator bounced to 58% which is slightly over bought.

Optionable Stock Bullish Percent (Intermediate term) this indicator is on DEFENSE, and declined further after Brexit to 48%. No real short-term gain to show any possible positive move.

NYSE Bullish Percent (NYSEBP) (Longer-term) this indicator is on DEFENSE. After wobbling back and forth at 60%, the Brexit plunge caused a further deterioration to 52%. Last week’s rally didn’t make any positive change here.(Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500 showed some serious damage after Brexit, getting down to 2,000, only to bounce hard last week to 2,100. All the extreme bearishness in the media might get the S&P 500 to new highs for the year, but the charts show quite a bit of overhead resistance. (Source: Dorsey Wright Website)

S&P 500

SP500782016

Dow Jones Transports We brought this chart up about a month ago. The thought is that if the transportation average is doing poorly, it means companies aren’t shipping products, trucks aren’t delivering to stores and people aren’t flying. The Transports really took it on the chin during the Brexit selloff and were only 7% or 500 points from the February lows. It would be negative if in the next two weeks the Transportation average broke 7,050, the most recent low. (Source: Dorsey Wright Website)

Dow Jones Transportation Average

DowJones782016

US 10-Treasury Note: the race to the bottom continues for rates! Brexit had the 10 year plunging to 1.5% only to go to new lows this week. This market is much overbought, (low yields/high bond prices), but the bounces are small and buyers keep coming in. This could eventually be negative for the global equity markets as this flight to safety continues even though global equity prices rebounded last week. 1% really looks like it is in the cards for the 10 year. (Source: Dorsey Wright Website)

10-year Treasury

10YearTreasury782016

Relative Strength Commodities continue to make their move. Gold and Energy have pumped Commodities to the #1 spot, followed by Fixed Income at #2, Domestic Equities at #3, Money funds at #4, Currencies at #5 and International Equities last. The difference between Commodities and Fixed Income is small, but enough to get them into first place for the first time in several years! (Source: Dorsey Wright Website)

Conclusion

Brexit really surprised the global equity market, the two day sell off was sharp and scary. However, it is tough to imagine that the issuing rally is signaling “all clear”. On the contrary, the defensive position of the bullish percent’s, the poor action of the Transports and the historical low yields don’t make this a “don’t worry, be happy” investment market. We are still on defense and monitoring both retail and institutional portfolios to weather any “pop up” thunderstorm that may hit the financial markets this summer.

Nice hot weekend ahead!

Christopher P. Englebert
Managing Director

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