Afternoon Note
All the big equity indices are under pressure, but the epicenter of the selling concentrated on technology names- especially Big Tech. The NASDAQ 100 is best proxy for Big Tech (more so than XLK), which is 80% tech with largest weightings being:
The NASDAQ 100 is hoovering right above its 50-day moving average and needs make a stand here. If selling continues, there might only be pockets of support down to the 200-day moving average.
Cloud stocks and internet security stocks are also in the getting hit in today’s selling.
Cloud
Security
The Dow Jones Industrial Average had been resisting the selling thanks to earnings beat from Caterpillar (CAT) this morning, but has since declined 100 points, 0.43%. The Nasdaq is lower by 1.5% and the S&P 500 is lower by 0.6%.
I think the selling is the flipside of passive investing, which has created the perfect funnel to encourage and reward the herd mentality, but unwinding means sharp and painful declines as well.
Pending Home Sales
Pending home sales increased for the first time in three months, rising 0.9% month over month in June. All four major regions saw an increase in contract signings. The Pending Home Sales Index rose 0.9% to 106.9 in June. On an annual basis, contract signing was down 2.5%.
Signings by region month-over-month:
There was an uptick in inventory as more listings found their way to the market. Inventory remains tight, but the new listings helped loosen the supply crunch. According to realtor.com, June saw large increases in active listings in several large metro areas. Higher prices may be luring buyers to put their homes on the market. Overall, June inventory grew by 4% over May, year-over-year inventory saw a 5% decrease. More importantly, the annual rate of decline is slower than the 8% rate in the previous twelve-month period.
Increase in active listings by metropolitan area:
Oil
Oil is on the rise as Iran sanctions loom on the horizon. The next big move in crude may be determined by President Trump’s actions ahead of the mid-term elections. If the U.S. decides to provide sanction waivers and temporarily exempt some countries from sanctions on Iranian oil imports, then Iran may only lose 500,000 to 700,000 barrels per day (bpd). If President Trump decides he wants to play hardball and pressure countries that import Iranian oil, then 2 million barrels per day could be removed from the market. The deadline for imposed penalties is scheduled to take effect November 4.
In other oil related news, last week Saudi Arabia suspended oil shipments through the Red Sea’s Bab al-Mandeb Strait following the attack on two ships by Yemen’s Iran-aligned Houthis. The straight is one of the most important oil tanker routes.
West Texas Intermediate crude is currently trading higher by $1.42, 2.05%, at $70.10.
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