A Roller Coaster Start to Summer Trading

In a sign that summer trading has officially started, with the recent Memorial Day weekend kickoff, it’s only fitting that participating in the suddenly ramped up stock market volatility has become reminiscent to riding “The Zipper”  as a kid at the amusement park on a late summer afternoon.

No doubt you’re guaranteed to have a lot of stop and start “ups and downs” but at the end of the ride you’ll be right back where you started.  

That pretty much sums up the month of May, particularly the last week, which was highlighted by a 1-2 punch Tuesday and Wednesday that was enough to send momentum traders to the sidelines and technical analysts using double thick crayons to draw their support and resistance lines.

As always, there are leaders; most recently Tech  and Financials; and laggards; clearly Transports are still a heavy weight, but on a macro level investors are still in search of the next meaningful market break, be it in either direction before picking up their chips and moving to a higher stakes table.

We’ll send the month of May packing with a healthy dose of data on the US Economy.  First and foremost we’ll get the First Revision of 1Q GDP where the previously reported +0.2% is widely expected to be revised to a -0.5% to -1.0%.  A downward revision of 1% is “baked in” this morning’s 8:30 AM release, and since we saw a very similar trend in 1Q 2014, the market is unfazed by this ….so far.

Of course, with any GDP report the devil will be in the details.   We already know that were it not for a sharp inventory build in 1Q, the advance GDP would have come in handily negative with the obvious headwind of final retail sales coming in at -0.5%.  Keep in mind that in 2014 a final 1Q GDP of -2.4% was followed up with a 2Q increase of +4.6% and 3Q of +5.0%, so we’ll have to pay particular attention to what economists do to their estimates for the middle 2 quarters of 2015 in the days and weeks ahead.

At 9:45 we’ll get the Chicago PMI report for May.  Consensus is for a slight increase to 53.0 from the April reading of 52.3.  Recall that the April report at 52.3 was a 6 point bump from February and March, when we had 2 consecutive months below the expansion/contraction threshold of 50.

Of course the Chicago report leads the National ISM report by 1 day, and although the National ISM has shown steady albeit gradual declines in the first 4 months of the year, it has yet to post a reading in the “Contraction Zone” below 50.  If the Chicago ISM report later this morning has a meaningful shortfall, you could hear nervous chatter on the National ISM report due Monday morning.

At 10:00 AM we get the University of Michigan final consumer sentiment report for May.  This has become little more than a “was the stock market good to you” the last few years, although it was mildly curious that the initial report for May showed a 7 point drop from the April Reading.

With the increase in gasoline prices having leveled off and the dreaded “sell in May and go away” axiom never getting any traction, it will be interesting to see if there is a meaningful “bump” off the initial mid month May report.

The Early Line:  The 1Q GDP is no doubt the feature story of the day, but keep a close watch on headlines out of both China and Greece.  At one point overnight, the Shanghai market had hit the 10% “correction threshold” from all time highs just earlier this week!!

The Greece drama has gone on so long that the market has largely ignored it the last 6 to 8 weeks, but when it finally resolves in either a new bailout, an exit from the Euro or a hybrid default/restructuring, the market will be forced to pay attention for at least a few days.

tanderson@mndpartners.com tjanderson56@gmail.com

Twitter: @TJAnderson1

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