Pulling back or petering out?


Is this a pullback to buy, or is the market petering out? That’s the question traders may be asking today.

The S&P 500 fell 0.9 percent between Friday, June 15, and Friday, June 22 — its first drop in five weeks. The index remained in a tight range and is still on pace for its third straight winning month.

Bigger companies in the Dow Jones Industrial Average fell 2 percent amid ongoing trade worries and slower growth overseas. Global indexes and transports slid almost 3 percent.

The week began with President Trump threatening tariffs against China and ended with a blast against European autos on Friday. Book-ended between were a handful of unremarkable economic reports: good jobless claims, a weak Philadelphia Federal Reserve index and mixed housing numbers.

There was also an OPEC meeting in Vienna, with the cartel agreeing to boost energy production by an unspecified amount. Traders saw the news coming from a mile away, and launched crude oil (@CL) to its biggest one-day rally in over a year.

Something might be happening beneath the surface as interest rates started to fall. That’s been mirrored by rallies in utility stocks and real-estate investment trusts. Both rose more than 2 percent last week and were the best-performing sectors overall.

Industrials and materials were just the opposite, sliding 3 percent and 2 percent respectively. That, combined with the interest-rate moves, may suggest sentiment is shifting away from cyclical-growth stocks for the time being.

S&P 500 index with potential support and resistance lines.

Taking a bigger look a the charts, the S&P 500 is back near the 2800 level where it peaked in March. Technical analysts may now look for the May peaks around 2740 to become support. If that zone breaks, they may worry about a retest of the May lows near 2600.

Darden Restaurants (DRI) was the single-biggest gainer in the S&P 500, ripping 16 percent on strong earnings and a dividend increase. Signs of digital turnaround lifted old-school grocer Kroger (KR) by 15 percent.

Red Hat (RHT) led the index to the downside by cratering 19 percent on weak guidance. Signs of slowing subscription orders weighed on other cloud players like Splunk (SPLK), Salesforce.com (CRM) and Nutanix (NTNX). Starbucks (SBUX) had the second biggest drop in the S&P 500. The coffee chain lost one-tenth of its value as weak traffic forced management to close 150 stores. Its Chinese business also disappointed.

Another interesting company in the news was General Electric (GE), which was dropped from the Dow Jones Industrial Average after more than a century of membership. Health-care giant Walgreen Boots Alliance (WBA) will take its place. Last week also saw big pullbacks in recent high-flying initial public offerings (IPOs).

This week may be quiet as summer progresses. Tomorrow brings consumer confidence. Wednesday features durable-goods orders, pending home sales and crude-oil inventories. Bank stress tests and initial jobless claims due Thursday, along with Nike (NKE) and WBA earnings.

Personal income and spending wrap up the week on Friday. There could also be some attention south of the border with polls showing the controversial leftist Andres Manuel Lopez Obrador expected to win Mexico’s presidential election on Sunday, July 1. How will he get along with Trump?

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.