Retail Sales Reports Start to Hit With Potential for Strong Reaction
Renewed concerns about economic growth combined with negative seasonality continues to be a major obstacle.
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A friendly CPI report on Wednesday helped to keep a recent bounce going, but significant overhead resistance and potentially dangerous news flow are looming. All major indices face various technical obstacles, such as the 50-day simple moving average and gaps on the chart. The market has enjoyed one of the best bounces of the year, but it is going to require some work to continue.
One of the more troubling areas for the market is the Russell 2000, which lagged badly during this bounce and recovered far less than any other indices. It was turned back at the 50-day and does not have the momentum we see in the Nasdaq 100 QQQ or S&P500 (SPY).
The test of overhead resistance looms as the market is about to deal with weekly unemployment claims and retail sales data. Both of these reports have the potential to raise concerns about the level of economic growth, which was the issue that triggered sharp corrective action on August 2, 2024, when a weak July jobs report was issued.
Concerns about the slowing of the economy reversed quickly, but the issue is far from resolved, and any new data points have the potential to generate a strong reaction.
Walmart WMT earnings are out, and the stock is seeing a strong reaction. That is good news, but the strength of WMT may also be a sign that there is a shift to "bargain" shopping as consumers struggle. Walmart is often a strong defensive play when economic conditions become more challenging.
I continue to be concerned about the potential for negative seasonality as the indices confront technical overhead. Seasonality is a tendency and not a certainty, but it is more likely to be self-fulfilling when there are technical challenges.
Although price action continues to look positive, I have a high level of concern about the potential for more upside. The poor action in the Russell 2000 has prevented many new opportunities from developing, and the stocks with the best relative strength are extended and facing formidable technical issues.
We have a mildly positive open with the strong Walmart report helping
At the time of publication, DePorre had no positions in any securities mentioned.
