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Stocks tread water in the dog days of summer

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Stocks tread water in the dog days of summer

Stocks in the US started off on a sour note on the heels of Asia’s disappointing equity performance which had the Nikkei down near 4%.  Investors seemed to shrug off Tuesday better than expected trade deficit which will likely have a number of analysts increasing their second quarter GDP growth numbers.

On Tuesday the Commerce Department said that the US trade gap fell more than 22% during the month, to $34.2 billion from $44.1 billion. Exports notched their sharpest rise since September 2012, hitting their highest level, on record. Imports fell as well.

The driving force behind the recent strength was the domestic energy industry. Imports of fuel oil and other petroleum products fell, while exports of both rose. The trade deficit in petroleum products fell by almost $2.2 billion from May to $10.23 billion; the trade deficit in non-petroleum products fell by $5.93 billion to $37.38 billion.

Stocks have been on the defensive for the last three trading session as investors wrestle with the idea that the Fed could reduce its bond purchases after their September 2013 meeting.  Yields declined on Wednesday giving investors some breathing room as rates have increased more than 120 basis points since May.

The S&P 500 index was able to hold support near the 20-day moving average at 1690.  A close below this level would likely lead to a test of support near 1680.  Resistance on the large cap index is seen near 1710.  Momentum on the S&P 500 is reflecting consolidation despite the fact that the index has generated a sell signal. The RSI (relative strength index) has declined from recent overbought levels above 70 and is now printing at 57 which is in the middle of the neutral range reflecting a consolidative market.

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