July seasonality argues for a strong end of month rally

SPX and QQQ look to be trying to stabilize after pulling back to support and showing a strong initial push off the lows into mid-day Thursday.  Economic data came in stronger than expected on Thursday, which might make the FOMC’s job a bit tougher, but likely takes a July surprise rate cut off the table.   Sentiment has worsened in recent weeks, though trends have not shown ample deterioration to expect much further selling pressure.  Moreover, July seasonality (which has proven quite accurate thus far) shows that a bottom and rally back to new highs is quite likely during the final week of July.  To reiterate yesterday’s message, DJIA, RSP, SPX are very close to support, and a market bottom should likely happen between Friday 7/26 and Monday 7/29 before pushing back to new all-time highs into late August. 

Overall, there were ample signs that momentum likely has bottomed out, and stocks have begun the necessary stabilization process to expect that a move higher should unfold between now and next Monday which could carry US Equity indices higher into late August/early September.  (SPX rallied 100 points from intra-day lows to Thursday’s mid-day peaks before failing.)

The rally into mid-day Thursday failed to hold near its intra-day highs, however, and retreated to end the session fractionally negative.  However, this doesn’t tell the whole story, as five of 11 SPX sectors rose on Friday, and it was merely Technology that declined sharply to lose ground following its early bounce attempt. 

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