Watching The 50-day Averages

The S&P 500 continues to pullback this morning.  We have been saying for the past week that we could see a pullback that takes the SPX to its 50-day average.  Today that seems more of a reality as the SPX currently tests 1616 while its 50-day average sits near 1605.

The S&P mid-cap index already tested its respective 50-day this morning, while the Nasdaq remains well above its 50-day for now.  Not every index tests these moving averages at the same time, and we tend to put more weight on the SPX since it is a big institutional benchmark.

In economic news, the ADP employment report showed the private sector added 135,000 jobs in May but that was below the 157k that was expected.  Also, the May ISM Services index came in at 53.7, which was ahead of April's reading of 53.1.

Separately, Q1 productivity data was revised to show a 0.5% increase from 0.7% first reported.  And unit labor costs were revised sharply lower to show a -4.3% decrease.  No signs of inflation here.

Asian markets were lower again overnight, led down by Japan which slid -3.8% after PM Abe revealed the third stage of his growth plan which didn't contain anything new to embolden investors.  Australia's GDP rose 0.6%, which was below expectations.

European markets are also lower today after disappointing economic data.  Eurozone GDP in Q1 was unchanged at -0.2%.  But the Services PMI fell to 47.2 from 47.5.  And retail sales declined -0.5%.  Several peripheral European services PMIs were also weak.  IMF Director Lagarde said the global economy could be headed for a bit of a soft patch due to slowing momentum in some emerging markets.

Commodities are mostly higher as the dollar index is down today.  Oil prices are at $94.05 while gold prices are back above the $1400 level that has been a struggle.  Silver and copper prices are higher as well.

The 10-year yield is lower today to 2.09%.  And the volatility index is 7% higher to 17.50.  This would be a 1-month high for the VIX if we closed here, but we could see the VIX fade if the market firms later in the day.

Trading comment: As the SPX approaches its 50-day, we want to look to add to equities and bolster our allocations away from some fixed income that was sold during the quarter.  Rather than bottom fish in stocks that have been hit the hardest, our strategy prefers to focus on what's holding up and poised to lead the market higher should we get our envisioned push higher into quarter end.  Financials have been one area that remains attractive,