June, We Barely Knew You

The S&P 500 fell 0.9% on Tuesday, taking back almost all of Monday’s gain. Breadth was negative by almost 2:1 and volume expanded by 20%. Downside volume exceeded upside turnover for the first time in six days. Even so, our measure of buying interest has deteriorated to its lowest level since January. In that regard, it seems that investors were not very attracted to stocks during June.

Indeed, the S&P gain only 0.02% for the month and the DJIA fell 0.6%. So, even though Wednesday’s headlines may highlight the fact that the “500” just finished its best quarter since 1998, that stat camouflages the fatigue that set in during June.

S&P 500 with Quarter Over Quarter Returns
That fatigue is reflected by the fact that intermediate momentum peaked two weeks ago and, at this early vantage point, seems positioned to remain under pressure through the third quarter. Thus, we continue to think that any near term strength will be unsustainable. Even if the indexes make a run back to their June highs, the result will likely be more and greater negative divergence than those that already exist. Those divergences, in turn, would likely be a prelude to an even more obvious decline.

First resistance at 927 is still intact. Next resistance is indicated at 935-936, followed by 956. We continue to view 879-866 as tactical support; a breach of that range would open the door for further weakness toward at least 812-777.