Daily Commentary: July 05, 2023

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Good Set-Up This Morning

Posted by Peter Stolcers on July 05

This gap down will provide us with an opportunity to join the trend at a good price.

PRE-OPEN MARKET COMMENTS WEDNESDAY – After a long holiday weekend, let’s start with a recap of the news from last week. Durable goods orders were better than expected (1.7%) and the third estimate of Q1 GDP came in at 2% (vs 1.3%). Initial jobless claims dropped to 239K.  Powell still believes that a soft landing is possible and the Fed is leaving the door open for more rate hikes. Central bankers were generally hawkish at a summit last week. China’s manufacturing PMI came in soft at 49.0 as expected.

Bank stress tests were released. According to the report, bank balance sheets are strong and large banks are well positioned to weather a severe recession and continue to lend to households and businesses even during a severe recession.

Today the FOMC minutes will be released. We’ve had a heavy dose of “Fed Speak” recently and I am not expecting anything new today.

ISM services will be released tomorrow. This number has been slipping and the last reading came in at 50.3 which is barely in expansion territory. I consider this number to be important for two reasons. First of all, 80% of our economy is service-based. Secondly, as a survey gives us a current read on activity. Most economic reports are backwards looking.

ADP will be released tomorrow and the jobs report will be released Friday. Initial jobless claims have been stable during the last month and I am expecting job growth in the 230K range. Hourly wages need to stay at .3% or lower to keep a lid on inflation fears.

Overseas markets were generally down and that is providing a slight headwind this morning. The SPY is going to test the gap up from Friday. If that level fails, we will fill in some of that gap. The move lower will be very stubborn. I am NOT expecting this. A more likely scenario is a dull start with that support holding and then a gradual rally once support is confirmed. The market challenged the high of the year two days ago and the volume was decent. I believe that buyers are not far away. Once support is confirmed, they will return. The bounce will also be gradual and choppy as traders try to shake off some of the cobwebs. The FOMC minutes will be released at 2 pm ET.

Support is at $438.14 and $441.11. Resistance is at $444.30

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