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Fundamentals

Transportation stocks came roaring back giving support to the bull market which many thought was in jeopardy because of the lagging index. The DJT leading all stock indexes and rose 131 points or 2.58% to close at 5,194. Technology was very strong up 2.23%, leading all ten Dow Industrial Groups as both Cisco ( CSCO: $ 19.06 ) + 1.52 or 8.7% and Apple ( AAPL: $ 648.11 ) + $ 26.41 or 4.3% put on strong performances. Cisco raised their dividend by 75%.

 

Consumer goods rose 1.59%; JM Smucker ( SJM: $ 82.96 ) + 4.28 shares rose 8.2% on stellar top and bottom line numbers. Earnings improved $ 0.17 to $ 1.17/share and sales $ 1.37 billion vs the $1.3 bil expected. The acquisition of the Sara Lee food business contributed 7%.Consumer services increased 1.29% and Financials 1.17%. Investors bought bullish Calls on the Select Sector SPDR- Financial XLF. So far this year the financial index is up 17% compared to 14% for the S&P 500.

 

The CBOE VIX volatility index, commonly known as the fear index, fell to a five-year low at 13.43 before closing at 13.45 down 5.9%. The Dow closed at 13,275.20, within striking distance of 13,338.66, the May high. The all-time Dow high is 14,198.10 on October 18, 2007. The VIX has closed below 15 less than 1% of the time over the past five years.

 

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Economic Data

Tic Flows declined sharply from $ 55.9B in May to $ 9.3 B in June. Long term TIC Flows are the sum of gross purchases by foreigners to US residents minus sales by foreigners to US residents. The components used to calculate long term flows are US Treasury Bonds and Notes; US Government Agency Bonds, US Corporate Stocks, Foreign Bonds and Stocks. Yields on US Bonds rose sharply. The US relies on a positive inflow of capital to balance its balance of trade deficit. The TBT which rises with yields rose 6.7%. The US depends on incoming funds to balance the huge monthly trade deficit. Also, Both the Empire Manufacturing ( – 5.9 ) and Philadelphia Fed ( -7.1 ) area manufacturing reports were weak.

 

Otherwise, it was a decent week for economic reports:  Retail Sales began the week + 0.8% well above expectations of +0.2% and the prior month’s -0.7%. The good number reversed the previous three months all negative. Building permits at 812K were well above the consensus of 770K; Leading Economic Indicators rose 0.4% double the 0.2% consensus. Michigan Sentiment for August was buoyant at 73.6 vs 72.2 expected and 72.3 in July.

 

Industrial Production at + 0.6% and Capacity Utilization at 79.3% were right in line.

 

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Technical Information

 

Support Levels:

S&P 500           1397; 1401

Resistance S&P 500     1428; 1434

 

Support Levels DOW            13,075; 13,150

Resistance DOW        13,340; 13,460

 

QQQ             6730; 6770

Resistance QQQ          6874; 6902

 

Nasdaq          2988; 3035

Resistance Nasdaq       3084; 3135

 

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Big gains in August 2000 and 1984 tilt Augusts’ election year number-one NASDAQ ranking. Leading up to these two Augusts and following them is a frightening sight. The bottom line is that August in election years is not a month to be trifled with for the bears.

 

In presidential-election years since 1952, August rankings improve significantly to: #4 DJIA and S&P 500 and #1 NASDAQ (since 1972) and Russell 2000 (since 1980).

While the market is at a technical crossroads we are entering one of the stronger months in election years. August is the number one month for the NASDAQ and Russell 2000.

If you look a little deeper into the record of August you find that the election year results have been swayed by some large numbers and that the month still exhibits volatility and stocks should still be handled with care in the month of August.

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