Daily Summary – June 30, 2021 - A Quiet End to A Strong First Half

  Daily Summary – June 30, 2021 - A Quiet End to A Strong First Half

US equity markets closed out a strong quarter and first half of the year (it was the 2nd best first half since 1998) with one of the least exciting days with all of SPX, NDX, Naz, and RUT finishing within a thirty basis point band.  Growth today was the laggard.  The band ranged from Naz on the downside (-0.17%) to SPX on the upside (+0.13%).  Of course, it's not just today.  The 5-day rolling realized volatility for SPX is 3.7. 

Style box much more favorable to value today than last few.  Bit of a bias to large caps.

Note: I will have a few "month-end" notes but there's too much for today so I'll be interspersing them over the next few days.

Major Market Technicals

An ATH is an ATH I guess (again) and we had it (again) for the SPX (fifth in a row).  With the muted action, nothing else worth noting.

Monthly charts all remain overbought but in great shape otherwise well above 20-MMA.

SPX Sector Flag

SPX sector flag improved a bit today with six green sectors (three yesterday) and three up over eight tenths (none yesterday).  None were down more than 1% (one yesterday).  Definite more of a bias to cyclicals today.  

SPX Sector Technicals Rankings

These are NOT necessarily in the order that I like them but how they're underlying technical fundamentals stack up.  But I try to note those which I like.  Going to keep playing with the groupings so bear with me.

Sectors with good technicals not stretched/overbought. 

XLC - Communications - MACD go long (today), RSI neutral.  

XLY - Discretionary - MACD go long, RSI positive, downgrading from top pick as there's no "favorite" right now, but technicals remain in good shape.  

XLV - Health care - MACD go long, RSI slight negative, no major resistance.  

Sectors with good technicals but extended (overbought).

XLK - Tech - MACD go long, RSI positive (but slight divergence), no major resistance. 

Sectors that have bottomed (IMHO) with technicals firming up (but the lows might be retested).

XLF - Financials - MACD go short, RSI negative, just under 50-DMA (failed again today).  RSI improving.  Think it's bottomed but we could see a retest of the lows now that it failed at 50-DMA, but if it can get over I think we'll see new highs.

XLI - Industrials - MACD go short, RSI negative, just under 50-DMA.  RSI improving.  Think it's bottomed but we could see a retest of the lows now that it failed at 50-DMA, but if it can get over I think we'll see new highs.

XLB - Materials - MACD go short, RSI negative, well under 50-DMA.  RSI improving.  Think it's bottomed but really lagging the other three just sort of riding its upwardly sloping 100-DMA.

XLE - Energy - MACD sell longs, RSI negative, back under 20-DMA. Testing the 50-DMA.

XLP - Staples - MACD go short, RSI negative under 50-DMA.  Upgraded as looks a lot like the three non-energy cyclical sectors above.  Failed on first test of its 50-DMA.

XLU - Utes -  MACD go short, RSI negative. Closed beneath 200-DMA and month's lows so close to getting moved back to poor shape.  

Sectors that have peaked short term (IMHO) needing to regroup.

XLRE - Real Estate - MACD sell longs, RSI negative, no major resistance.  Continues to trade in narrow range from last week.  Regrouping.

Sectors in poor shape.

None

Quick check of the monthly charts shows that all have go long MACD monthly signals (although utes is getting close to losing that).  RSI's are overbought in comm's, tech, RE, tech, disc and healthcare.  Fins, industrials, and materials had RSI crossovers from over to under 70 (barely).  Something to monitor.  All well above 20-MMAs.  

Key Subsectors - SOX (semis), IYT (transp), XBI/IBB (bios), XHB (homebuilders), XRT (retail) 

Weakness in XBI again today but less than yesterday and IBB again finished better.  Semi's were mildly red while homebuilders, transp, and retail were all green. 

Breadth

Breadth improved today.  Despite being around flat levels (or down for Naz) we saw 62% of NYSE and 57% of Naz volume positive.  That's very solid.  NYSE issues also decent at 55% positive but Naz continues to lag at 43% (but better than yesterday at least).

Commodities/Currencies/Bonds

Bonds - 10-year yield fell almost four basis points to 1.443%. 2-year yield fell one so another day of yield curve flattening.   

 

Dollar - Decent day pushing up to last week's high.  Will be interesting to see if it can push up above those to that trendline. 

VIX -  Started up but ended up a little lower at 15.83.

Crude - Up around two-thirds of a percent to $74.45 WTI.

Did a report on EIA today (link in U.S. Data section).  Headline was another big crude draw.

And reminder that OPEC+ meeting is tomorrow.  Expectation is for a mild increase of around 500 - 1,000 kbd.  Interestingly, though, despite all of the fears of massive undersupply next year, OPEC+ fears a "glut" if they don't extend supply agreement beyond current expiration of April 2022.

DUBAI, June 30 (Reuters) - OPEC+ is expected to discuss extending its deal on cutting oil supply beyond April 2022, two OPEC+ sources said on Wednesday, after a panel set up by the group warned of "significant uncertainties" and the risk of an oil glut next year.

The OPEC+ panel, known as the Joint Technical Committee, said in a report it expected an overhang of crude by the end of 2022, based on several scenarios for supply and demand. 

The report said the oil market would be in deficit in the short term but a glut was on the horizon once the OPEC+ supply cuts ended. 

it said there would be a "significant increase" in inventories in 2022, lifting stocks to 181 million barrels above the five-year average by the end of next year, the report said.
The base case adopts global oil demand growth assumptions and non-OPEC supply growth from OPEC's June monthly report, with a preliminary forecast for 202

Nat Gas (/NG) -  I had thought maybe we were seeing a reversal with yesterday's big wick but apparently not as was up another 3% to another 30-month high.  Remains massively overbought.   Was up something like 25% in June.  

Gold (/GC) - Continues to churn under its 100-DMA today up four tenths.  This remains consistent with that April/May consolidation.  

Gold had its worst month in 4 years in June. 

Copper (/HG) - Also continues to churn around its 100-DMA.  Up today six tenths as it remains trapped between short term downtrend and longer term uptrend.

U.S. Data

Did reports on ADP, pending home sales, and EIA today.

US ADP Employment Change Jun: 692K (est 600K; prevR 886K; prev 978K) - June beats but May revised down - Service jobs continue to come back - details https://sethiassociates.blogspot.com/2021/06/us-adp-employment-change-jun-692k-est.html

US Pending Home Sales (M/M) May: 8.0% (est -1.0%; prev -4.4%)

https://sethiassociates.blogspot.com/2021/06/us-pending-home-sales-mm-may-80-est-10.html

US DoE Crude Oil Inventories (W/W) 25-Jun: -6718K (est -3850K; prev -7614K) - another large crude draw with Cushing now at March 2020 levels - details

https://sethiassociates.blogspot.com/2021/06/us-doe-crude-oil-inventories-ww-25-jun.html

Next 24

More int'l data overnight with Japanese Tankan surveys, S Korean and Australian trade, some European and Chinese manufacturing PMI final reads for June, German retail sales, EU employment, followed by jobless claims, final June mfg PMI, and May construction spending here in the U.S.

We also get a few earnings of note - MU, GIS, and STZ.

In terms of that jobless claims data, really interesting thread today by a California think tank that approximates UI claims in California overstate the actual number of unemployed by approximately 2/3 due to the number of individuals being "repeat" claimants.  

Overall

In a sentiment check, State Street Investor Confidence Index released today falling a bit from May.  According to State Street this "measures investor confidence or risk appetite quantitatively by analyzing the actual buying and selling patterns of institutional investors. The index assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher risk appetite or confidence."

Sticking my July script - "Late June and July is one of the most consistently positive periods of the year, so I'm looking for gains.  I also think we'll see cyclicals perform well; I still like discretionary and health care, but I think tech is going to start to underperform at some point." - I still remain concerned that we could be setting up for a 2-5% whack before we move higher but think any selloffs are contained for now.

Misc.

Some other random stuff.  

The path to a reconciliation bill gets messier.  First WH confirms that they don't expect to have the "extra" amounts for anything that was in the bipartisan bill, but at a lesser level than progressives want, to be in the reconciliation bill... 

... As Pelosi reiterates no vote on bipartisan deal until Senate has approved a reconciliation bill.  Hopefully this is all posturing, because there's no path to any deal under these conditions.

As Atlanta Fed's survey of business uncertainty continues to recover.

And more auto idling.

And repo ops now just under $1T.  Basically an entire stimulus bill (or Facebook) doesn't have a good place to sit overnight.  

As we are already getting carveouts from the global minimum tax.  Like the entire financial sector?

As Kolanovic says don't fear the delta variant in developed countries due to vaccinations and higher levels of "natural" immunity at this point.  Russia stands out due to their pitiful vaccination rate and lower prior exposure to Covid.

“We analyzed the progression of new cases and fatalities in the top 15 countries most affected by the Delta variant over the past month,” he wrote. According to that analysis, cases declined in 10 out of 15 countries. “In 13 out of 15 countries, fatalities declined as the Delta variant increased [its] share of new infections,” Kolanovic said.  “Note that oil, as the most COVID-19/lockdown–sensitive asset, was not affected by Delta variant fears,” Marko said, before reiterating the bank’s preference for being long reflation, cyclicals and value, while shedding growth and defensives.

To see more content, including summaries of economic reports and my morning and nightly updates go to https://sethiassociates.blogspot.com