U.S. equities finished mixed on Monday in relatively uneventful trading. The open was stronger than the close, as prices were hit by a tech-led, mid-day selloff that oddly also affected cryptocurrencies like bitcoin. Overcrowded trades, perhaps?
In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 gained a fraction, the Nasdaq Composite lost 0.3% and the Russell 2000 gained 0.1%. Treasury bonds were stronger, the dollar was mostly higher, gold lost 0.8% boosting the July SPDR Gold Trust (ETF) (NYSEARCA: GLD ) puts recommended to Edge Pro subscribers.
Breadth was positive, with 1.9 advancers for every declining issue, while volume was just below 80% of the NYSE's 30-day average. Utilities led the way with a 0.8% gain, while technology was the laggard, down 0.6%.
Rite Aid Corporation (NYSE: RAD ) gained 30.2% on reports the company's proposed merger with Walgreens Boots Alliance Inc (NASDAQ: WBA ) will be approved. Avis Budget Group Inc. (NASDAQ: CAR ) gained 14.2% after announcing a partnership with Alphabet Inc (NASDAQ: GOOG , NASDAQ: GOOGL ) to maintain the fleet of Waymo's self-driving vehicle program.
And Pandora Media Inc (NYSE: P ) gained 2.1% on an upgrade from analysts at Pacific Crest on reduced downside risk on moderated expectations and stabilized cash flow.
On the downside, GrubHub Inc (NYSE: GRUB ) fell 6.4% on a downgrade from Morgan Stanley analysts citing growing awareness and adoption of Amazon.com, Inc. (NASDAQ: AMZN ) restaurants and other online platforms.
While stocks refuse to move from their perch just beneath recent record highs, there remains plenty of action in fixed income as Treasury bonds continue to rally to the upside. The iShares 20+ Year Treasury Bond (NASDAQ: TLT ) has now fully reversed its post-election decline as long-term yields decline. This is a big vote of no confidence in the health of the economy and the wisdom of the Federal Reserve's policy tightening pace.
Focus intensified on the Fed's increasing focus on financial stability and extended stock market valuations as a possible motivator for the monetary tightening despite uneven economic data. Over the weekend, New York Fed President Bill Dudley noted that financial conditions (including stock prices) have actually eased since the Fed began raising interest rates in December 2015, which is the opposite of what they want.
He noted that when this happens, it can provide additional impetus to continue raising rates more aggressively. Thus, there is growing worry on Wall Street that the Fed is about to turn hawkish and actively work to weaken stock prices and thus the flow of credit into the economy to prevent overheating.
Watch for more on the topic from Fed chairman Janet Yellen when she speaks in London on Tuesday.
Technically, the Nasdaq's big downward reversal today represented a big buying climax of the type that's becoming more common. And with stocks in such a tight trading range, that's a dangerous pattern. This is also known as a "hammer" pattern, as indicated by the long upward "tail" on today's candlestick.
According to Jason Goepfert of SentimenTrader, the S&P 500's recent three-week range is one of the tightest ever after a breakout. It's unclear whether this is just a pause that refreshes or a sign of buying exhaustion.
Historically, how the S&P 500 performs over the next two weeks had a big say in how the rest of the year went. Unfortunately, the behavior of individual stocks suggests trouble. More than 10% of the S&P 500 components suffered a buying climax last week, which means they hit a new high then closed below its close from the prior week.
That's the second time in three weeks that at least 50 S&P 500 components suffered this fate. And it was accompanied by only a single selling climax.
The net differential between the buying and selling climaxes was "one of the higher we've seen over the past 20 years" according to Goepfert. Historically, the S&P 500 has returned -1.2% annualized after setups like this.
Today's Trading Landscape:
To see a list of the companies reporting earnings today, click here .
For a list of this week's economic reports due out, click here .
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