Week Ending June 21, 2024
Soft Retail Sales Point to Further Weakness in the Consumer Economy
Retail sales printed at 0.1% growth while consensus expectations were set for 0.2% growth. Retail sales growth has been in a downtrend since February 2024.
Building Permits Decline
In May 2024, U.S. building permits decreased by 3.8% to a seasonally adjusted annual rate of 1.386 million. This print is the lowest since June 2020. It fell short of market expectations, which had projected 1.45 million, based on preliminary estimates.
SPX Technical Analysis
SPX was able to record another consecutive positive week of trading despite the week ending with two days of losses. The last two trading days were conspicuous due to the apparently strong control an individual firm, Nvidia Corporation (NVDA), has over the broader market. Thursday and Friday losses were largely due to increased NVDA selling activity on strong volume. A chart of NVDA price action shows a bearish two bar pattern forming on Tuesday and Thursday. (Remember, Wednesday was a market holiday for observance of Juneteenth.) Again, volume on these two trading days was higher than average. As NVDA fell, so did the broader market. NVDA shed 10% of its value peak to close over Thursday and Friday trading. SPX was down -0.7% over the same timeframe.
While a less than 1% loss does not seem significant on a nominal basis, the selling pressure was enough to cause SPX price action to trade and close below a near term upwardly sloping support trend line. See the first chart below for information on SPX technical analysis. While on the subject of upwardly sloping support trend lines, NVDA price action definitively broke its near term trend line. The stock has little in the way of support which raises concern that a significant pullback may be ahead. The next strong support from another trend line is 10% away while the 50 day moving average is 20% away.
Interestingly, a previous two bar bearish pattern formed in NVDA price action in early March 2024. That bearish pattern was followed by a roughly 18% correction in the stock over the next 29 trading days. See the shaded red area in the second chart below. On a positive note, SPX only shed roughly 3.5% over that timeframe.
While the fate of NVDA seems to steer the broader market, SPX has had to endure much milder price fluctuations. The larger concern, however, is declining market breadth. The advanced decline line for the S&P 500 Index has been in steady decline for the entire month of June while the index has posted a 3.5% gain over the month. See the third chart below. As participation in the current bullish wave wanes, the recent pullback in NVDA may be a harbinger of a broader pullback in the S&P 500 Index. Unlike NVDA, there is more robust technical support for SPX by a near and medium term trend line as well as the 50 and 100 day moving averages. See the first chart below.
An initial look at a chart of S&P 500 Index trading shows massive volume on Friday, June 21. Rather than a strong technical signal, the volume is related to a triple witching day on which expiration of stock options, stock index futures, and stock index options contracts causes a spike in trading activity. For 2024, triple witching day are March 15, June 21, September 20, and December 20.
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