According to the Stock Trader's Almanac, the S&P 500 has been positive on the first trading day of July 85.7% of the time, with an average gain of 0.42%. That level of bullishness is probably due in part to semiannual inflows into retirement and 401k accounts that occur automatically, but traders also help to make it self-fulfilling to a degree, as they play the odds.
So far Monday morning it is looking like today may turn out to be an exception to the historical tendencies. Global trade issues continue to bubble up and stocks around the globe are trading in negative territory. Automobiles are in the spot light now and there seems to be no pullback in Trump's position on China tariffs.
In addition to a variety of trade war problems, President Trump has asked the Saudi government to increase oil production to help keep prices down -- and in Germany, Angela Merkel, is facing more political issues as her coalition threatens to fall apart over the migrant issue.
For most of 2018, the market has done an exceptional job of shrugging off negative news, but that tendency has worn off lately as the trade war issue refuses to go away. Trump has not backed off, as he has done so often in the past with other issues, and seems to be hardening his stance on China.
Technically, the indices are struggling and are in poor shape. The S&P 500 closed poorly on Friday but managed to stay in positive territory, which statistically is positive, but the overall pattern of the indices is not encouraging. The uptrend has been under pressure for a couple of weeks now, and selling on higher volume has been more frequent.
Another complication this week is that the market is closed early on Tuesday and all day on Wednesday for the Independence Day celebration. This sort of mid-week holiday is unusual, and is going to make for some thin and whippy trading.
It is likely that dip buyers will try to take advantage of the positive historical stats and buy the weakness Monday morning, but this is not a market that lends itself to aggressive buying. The technical setups are poor, there isn't any real leadership and the pockets of momentum have mostly disappeared.
I am starting the third quarter of the year with over 75% cash and plan to stay highly selective with any new buys.
A gap-down open on a historically positive day will likely bring in some dip buyers, but the problem is that this market has not done well generating sustained momentum recently. Buyers are likely to be flippers -- and that will prevent sustained upside movement.
Keep in mind that trading around the holidays often produces some pockets of speculative action in small-caps as traders push things around. Even if the indices due stay suppressed, there could be some "holiday trading."
