Technically Speaking For June 10

Includes: IEF, IWM, QQQ, SPY, TLT
by: Hale Stewart

Data from the UK shows that Brexit is hurting the UK economy.

Some internals from Friday's employment report show a weakening labor market.

The markets are still having a difficult time printing a broad-based rally that includes small and micro-caps.

Brexit is hurting the UK economy. The Office of National Statistics released the latest GDP report today, which reported a 0.3% increase in the latest three month period. However, growth contracted 0.1% in March and 0.4% in April, the most recent months for which data is available. A sharp drop in production was a primary reason for the drop in GDP. According to the latest Index of Production (also released today), total output dropped 2.7% between March and April. The breadth of weakness was widespread (emphasis added):

The weakness is due primarily to manufacturing, decreasing by 3.9% and is supported by a fall from mining and quarrying of 2.4%. Within manufacturing there is widespread weakness, with 11 of the 13 subsectors falling, as the boost from the early completion of orders ahead of the UK’s original departure date has faded.

The possibility of a hard Brexit pulled orders forward, meaning we can expect further weakness in the coming months.

Let's take a look a some of the data from Friday's employment report:

In the last 12 months, there have been five releases where the monthly establishment job growth was 178,000 or less, which was last July's overall gain. In the last four reports, the pace of monthly growth is clearly decelerating.

Job growth in the three main goods-production sub-categories is also decreasing on a Y/Y basis. The Y/Y rate of growth in retail (in blue) and information services (in red) has been negative since February.

The combined impact of these data points is negative. The pace of goods-producing jobs growth is declining, which is supported by the declining ISM Manufacturing data and weaker business investment spending. The global trade situation isn't helping. Total construction spending has leveled-off since July 2018, which explains the slower pace of construction hires. The Y/Y percentage change in retail sales is also slowing, which is hurting retail jobs.

Last week was good for all asset classes. The following chart is from Capital Spectator - a must-read website: In general, riskier foreign assets (emerging market equities and bonds) gained less but were still higher.

Let's turn to today's performance table: Today was a good day, with the QQQs leading the way, followed by the transports and small-caps. And, to add to the good news, Treasuries sold off. On the surface, it would appear that the market is starting to turn to a more bullish orientation. But below the surface, there are still problems, which are best shown on the 30-day charts.

Let's start with the Treasury market:

The IEF (the 7-10 year Treasury market ETF) has been trading sideways, using the 108.6 level for technical support.

The TLT is also consolidating gains, but using a different price level (130) for support.

Turning to equities, large-cap indexes have performed well.

The SPY has rallied strongly, rising from 273 to the 290 level (about 6.25%) in early June. Prices are now above the 289 level, which was providing technical resistance.

The QQQ has also rallied but is still below highs from mid-May.

But then we turn to the micro and small-caps:

Micro-caps are still in the lower half of their 30-day chart. Prices just broke through resistance and are still struggling to move above the 200-minute EMA. The "rally" since the beginning of June is having a great deal of time gaining any traction.

Small-caps are in a stronger rally, but that's not saying much. Like the IWCs, the IWMs are having a great deal of trouble gaining any traction to move higher.

The 30-day charts show that traders don't want to sell Treasuries nor bid-up small and micro-caps. And that continues to make this rally suspicious.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.