Date: July 5, 2017

Market Remains Uneven But No Big Decline Coming

I hope everyone had a festive July 4th holiday with family, friends, food and libations! Thanks to all those who have served to fight for and protect our freedom as the greatest nation on earth.

We pick up mid-week no different than on the holiday shortened Monday or last week. It’s a tale of two markets, the NASDAQ 100 and the rest of the major indices. On Monday, where I felt like one of the few who worked, the Dow scored an all-time high but was rejected into the close. None of the other major indices were that strong. The NASDAQ 100, however, was hit with the ugly stick once again, and the decline and period of underperformance continues. Apple in particular looks especially vulnerable to another wave of selling which could take it to visit the average price of the last 200 days near $130. Until better action is seen, selling rallies in this stock, sector and index are probably the best strategy.

Overall, stocks look like they are unevenly digesting and consolidating, biding their time for the next leg higher. I don’t think that happens right here, but I also do not see any decline of significance in front of us. While transports and banks have resumed leadership as I have mentioned several times, semis and discretionary are struggling, for now. I do not believe they have seen their bull market peaks yet, no matter how hard the bearish pundits scream otherwise. High yield bonds are settling into a trading range as well which also lends credence to my overall pause mode for the stock market. Participation remains strong.

Of note to close on, energy blasted higher on Monday, which should force some hands today as investors come back to work. At some point, the energy stocks will bottom and begin a huge rally. I just don’t think it’s right here. At the same time, defensive sectors like staples and utilities have been hit hard on prospects for additional rate hikes and a better economic climate.

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Paul Schatz, President, Heritage Capital