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Stocks edge lower as momentum reverses course

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Stocks edge lower as momentum reverses course

Stocks in the US continued to consolidate after experiencing a strong run up during the first half of July.  Earnings in the S&P 500 have generally beat expectations with nearly 68% of releases beating estimates and only 23% missing (the balances of the releases were in line).  Economic data continues to come in light, as investors look forward to Wednesday’s second quarter GDP and Friday’s non-farm payroll report.

Prior to the opening bell on Monday Pharmaceuticals Company Perrigo (NYSE:PRGO) announced that it has agreed to acquire Irish peer Elan (ELN) for $8.6B in cash and stock, with the $16.50 per share bid representing a 10.5% premium to the latter’s closing price of $14.93 on Friday. The combined firm will be incorporated in Ireland, where the tax base is 12.5.

Japanese stocks declined significantly for the second straight trading session losing nearly 3.5% on Monday after a nearly 4% decline on Friday.  The liquidation comes on the heels of worse than expected core CPI released on Thursday and a stronger than expected headline inflation report.  Market participants are now speculating that the BOJ could pull back, which has increases bond yields and eroded stock values.

US traders continue to focus on the Fed Chairman Sweepstakes as investors try to prognosticate on who will be appointed the new head of the FOMC when Chairman Ben Bernanke steps down.  Janet Yellen is currently the lead candidate according to market participants while Lawrence Summers is running a close second.

In economic news, The National Association of Realtors said Monday that pending home sales fell 0.4% in June from a month earlier to a reading of 110.9. Pending sales in June were 10.9% higher from on a year over year basis.

The MACD has generated a sell signal on the S&P 500 index which could generate a correction toward support near 1655.

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