Stock Market Update (July 31): Will Bulls Have To Burrow?

Stocks fought back today, bouncing higher and recouping some of the recent losses.

Let’s review some key price levels and market themes:

S&P 500 (NYSEARCA: SPY) 281 remains pivotal.

Russell 2000 (NYSEARCA: IWM) 166 pivotal area with 170 looming above

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Dow Jones Industrials (NYSEARCA: DIA) Inside day. 252.50 support and has to clear 254.79 and then 255.68

Nasdaq (NASDAQ: QQQ) Writing this pre-AAPL earnings. 175 the 50 DMA and with an inside day, first level to clear 177.73

There used to be hundreds of millions of prairie dogs in North America.

Their massive colonies extended for miles and miles.

Today, their range has shrunk to less than 5% of their original range.

Similarly, we can compare that to two points concerning the market.

First, the shrinking trading range since mid-May.

For example, since May, the Russell 2000 has traded between 160 and 170.

The second similarity is the number of stocks to trade now, compared to years ago.

For example, there has been at least a 65% decline in the number of U.S. IPOs since 2014.

The number of U.S.-listed companies since its high in 1997, has declined by 37%.

Secondly, prairie dogs are tough.

They have sharp claws and powerful teeth. They fight back.

Here again, we can liken them to the market bulls. With sharp claws and powerful teeth, the bulls are fighting back.

With fewer stocks, a tighter range and relentless bulls, will this rally survive given all of the risks?

Last night I wrote about Granny Retail (XRT).

“A consumer driven rally means more to me than a tech driven rally.”

Today, consumer confidence for the second quarter showed an increase by 1.4 percentage points, or close to an 18-year high.

Favorable economic conditions, feel-good spending, and increased retail sales all factor in.

However, expectations for the near future have turned down.

Our advice for the consumer to get better tracking of what to expect in the economy in the near future, is to watch a few instruments.

Retail Brick and Mortar, as measured through the ETF XRT, is one way.

Today, XRT got as high as 49.85, but could not clear 50.00. That’s my point and if it cannot clear, XRT must hold 49.00.

Next, the U.S. Dollar is key. With reasons to support both a decline and gain in the dollar’s value, either scenario will impact consumer’s wallets.

Should the dollar decline, then their money, with already stagnant wages, will buy less.

Furthermore, the interest rates factor in. With the upcoming Federal Reserve weigh-in, higher rates are a mixed bag. Banks will pay more, and goods will cost more.

Lower rates mean, the cost to borrow is less, but inflation could start to rise.

Finally, with employment numbers coming out Friday, a lot of confidence stems from the extended job growth.

Should that trend reverse, shoppers could view this back-to-school season with more caution.

Prairie dogs have a very advanced vocabulary, which includes the ability to alert one another if danger lurks. They can communicate that a human wearing blue is approaching.

Bulls also have an advanced vocabulary.

If the bulls do confront danger, they will tell one another quickly and burrow, just like the prairie dogs.

Twitter:  @marketminute

The authors may have a position in the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.