Monday Morning Musings

Well, that wasn't a very fun way to start off the week. Over the weekend leaders of the House and Senate reached an agreement on the debt ceiling to avoid default, and last night the futures on the Dow were up over 150 points. But the enthusiasm was short-lived this morning, as the market opened higher but quickly began to give back its early gains.

It appears that traders were prepared to sell into the opening pop. The Dow was up over 100 points, and then the economic news came out in the form of a disappointing ISM Index for July. The ISM fell to 50.9, well below expectations and also below last month's reading of 55.3. The news was disappointing and increased the selling pressure.

Asian markets had been higher overnight, and Europe was higher this morning. The dollar was also trading higher.

We have also seen reversals in oil and gold. Oil prices were positive this morning, but have slipped back to $95.20. And gold prices started off lower, but have firmed up near $1631.

The 10-year yield is falling further to 2.74% currently, as the bond market still seems more concerned with an economic slowdown than the debt ceiling shenanigans. The VIX is down -2.5% from Friday's spike higher.

Trading comment: The S&P 500 seems to be caught right now between its two key moving averages. Below you can see that it rallied right up to its overhead 50-day average near 1307, before running into resistance. It has now fallen all the way back to its rising 200-day moving average near 1285. This 200-day moving average is key support, and traders will lean on the SPX further if it can't hold that 1285 level.

That's the short-term picture. Right now there is also pressure coming from Europe, where the CDS market is trading near record highs for many Western European countries. Hopefully, we don't have another crisis over there like Greece. Big picture, I am still leaning towards a second half rally in the U.S. and want to buy this dip. If the market can't make new recovery highs later this year, that would be the first sign to me that this bull market may be long in the tooth.