IGT update post the June 12th blog entry Gary and I authored…stock held its 23 support zone noted in that article early in July and has been grinding higher ever since up to today’s $24.75 zone. For first time in a while, call option activity has picked up……almost 3,000 July 24 calls and 2,800 July 25 calls have traded today, along with about 1,000 July 26 calls. As noted in that earlier post, option open interest remains heavily skewed to the call side, in all months out thru October. The stock moved above its downward sloping 20 day SMA at $24.60, but has some more work to do to recapture its 50 day SMA at $25.95. Option players seem confident that is a strong possibility given today’s action.

The third quarter is usually the toughest quarter of the year for stocks.  As we enter this rough patch, a very bullish data point from Ryan Detrick:

“Q3 is historically the worse one for stocks.  But what happens when the S&P 500 is higher in April, May, and June (like it was in 2018)?   Wouldn’t you know it, Q3 has been higher 9 of the past 10 times (going back to 1980).”

Very interesting…

It’s true, an inverted proceeded the last nine recessions.  But, there was quite a bit more of the expansion ahead before a downturn in the economy.  On average, 21 months:

Hat tip Ryan Detrick

The lede:   The U.S. created 213,000 new jobs in June, another strong showing that reflects an acceleration in economic growth that started in the spring. Economists polled by MarketWatch had expected a gain of 200,000 nonfarm jobs. In a surprise the unemployment rose to 4% from 3.8%, but it might be tied to education with the end of school year. The average hourly wage paid to American workers rose by 5 cents, or 0.2%, to $26.98. The yearly rate of pay increases was unchanged at 2.7%. Employment gains for May and April were revised up by a combined 37,000, the Labor Department said Friday. The government said 244,000 new jobs were created in May instead of 223,000. April’s increase was raised to 175,000 from 159,000. 

Rollbacks matter.

Hat tip MarketWatch.com/dshort.com/advisorperspectives.com

An inverted yield curve has proven to be a key indicator in predicting recessions.  Currently the 10-year Treasury yield (2.83%) is now only 0.31% higher than the 2-year yield (2.52%), the flattest curve since August 2007.

But, is it always wise to fear an inverted yield curve? 

9 of the last 9 recessions started with one.

The 2-10 inverted in Dec ’88, May ’98, and Jan ’06.

S&P 500 Index peaked 19, 22, and 21 months later.

It gained +33.2%, +39.6%, and +22.3% AFTER each inversion.

Yield Curve Inversion Explained:  An inverted yield curve is an interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This type of yield curve is the rarest of the three main curve types and is considered to be a predictor of economic recession.

The shape of the yield curve changes in accordance with the state of the economy. The normal or up-sloped yield curve may persist when the economy is growing and conversely, the inverted or down-sloped yield curve is likely to press on when the economy is in a recession. One underlying reason such a relationship exists between the yield curve and economic performance relates to how a higher or lower level of long-term capital investments may help stimulate or rein in the economy. By issuing longer-term securities with lower-yield offerings, businesses and governments alike can acquire needed investment capital at affordable costs to jumpstart a weak economy.

Hat tip Charlie Bilello, Ryan Detrick, Investopedia.com

From WSJ.com:  American factory activity accelerated for the second straight month in June, signaling momentum in the U.S. manufacturing sector.

The Institute for Supply Management on Monday said its manufacturing index rose to 60.2 in June from 58.7 in May. Numbers above 50 indicate activity is expanding across the manufacturing sector while numbers below 50 signal contraction.  Economists surveyed by the Wall Street Journal expected a 58.1 reading for June.

Rollbacks matter…

Remember when we were told these jobs were never coming back…

“When somebody says like the person you just mentioned who I’m not going to advertise for, that he’s going to bring all these jobs back. Well how exectly are you going to do that? What are you going to do? There’s uh-uh no answer to it. He just says. “I’m going to negotiate a better deal.” Well how? How exactly are you going to negotiate that? What magic wand do you have? And usually the answer is, he doesn’t have an answer.”

Hat tip WSJ.com/gatewaypundit.com

Is this a signal for continued strength in the large caps(S&P 500 Index)?  Actually, it is.  The S&P 500 moved higher 6 months later 9 of the last 9 times the Russell 2000 has had a similar run:

Impressive data.

Hat tip Ryan Detrick of LPL Research

At least for the next month, it doesn’t get much better:

Hat tip Bespoke Research

The S&P 500 Index entered the Summer Solstice up 3% year to date.  In the 35 other times the index has done this it has finished higher for the year every time.  Many of those years posted quite impressive returns:

Hat tip Ryan Detrick of LPLRresearch

So, what happens next?  Some color from Ryan Detrick:

This is the 30th 8-day losing streak ever.  Hasn’t hit 9 losses in a row since 1978.  12 is the longest losing streak ever. Happened in 1941 and again in 1968.

The average loss during the previous 29 8-day losing streaks was 7.0%.  It is down only 3.1% during this 8-day losing streak.  In other words, this losing streak will get a lot of press – but to put it in perspective … 390 SINGLE days have dropped at least 3%.

Don’t forget that since ’82, after an 8-day or longer losing streak ends the Dow has been higher 3 months later every single time (six out of six times).