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The Pause that Refreshes

David Becker
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Equity markets took a breather following the long holiday weekend, as traders took profits following a new all-time high for many of the major indices. The reduction in risk was apparent as traders hammered the Russell small cap index which saw a decline of more than 1.75%. Despite the rocky beginning of the week for stocks, some such as Apple (NASDAQ:AAPL) saw positive results.

There are a number of reasons stocks sold off, as bears can hang their hats on a number of issues. In the Middle East, there is still uncertainty as Iraq delayed its next parliament meeting until August 12, and Israel moved troops to the Gaza border in anticipation of further violence. More likely, a renewed focus on the timing of the first Federal Reserve rate hike was probably the key factor. Both JP Morgan (NYSE:JPM) and Goldman Sachs (NYSE:GS) have pulled forward their tightening assumptions by a quarter, respectively.

The strong momentum in the stock market could cause Federal Reserve Chair Janet Yellen to increase rates at a faster clip than prior forecasts. That said, this is less likely to be addressed in the Fed minutes this Wednesday, which are backward looking and reflect last month’s data.

Today investors will get a look at job opening data. Within the JOLTS (Job Openings and Labor Turnover Survey) report, it is important to take note of any change in the hiring or quit rate, which Chair Yellen has highlighted as important labor market indicators.

The Russell tumbled as investors took profits and could continue to see negative momentum as the MACD (moving average convergence divergence) index generated a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.

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