Stocks Are Likely To Drop After Amazon’s Massive Guidance Miss

 | Jul 30, 2021 01:57AM ET

GDP had a big miss yesterday, coming in at 6.5%. Normally, that would be a great number, but when expectations were for 8.5%, that’s a huge miss. Pending home sales also came in weaker than expected, falling 1.9% for the month versus estimates for a gain of 0.3%—disappointing economic data across the board.

It didn’t stop the S&P 500 from rising because bad news is good news. Obviously, if the economy is weakening, the Fed can’t taper, right? Well, that’s not entirely true. The Fed can easily taper, the economy is still robust. The problem isn’t the economy; equity market valuations are too high to be supported by the weaker growth rates. Eventually, investors will realize that the Fed is about to embark on a tighter monetary policy, just as economic growth is normalizing to lower growth rates, while valuations are at historically very high levels.

h2 S&P 500 /h2

The S&P 500 (NYSE:SPY) hit resistance at the trend line and failed to hold it and not make a closing high. The momentum trends are still diverging, with the Advance/decline, RSI, and MACD all trending lower. At this point, I think we test the 50-day moving average at a minimum.

h2 S&P 500 Equal Weight/h2

Meanwhile, the equal-weight S&P 500® Equal Weight ETF (NYSE:RSP) tried to break out. Technically, it had a new closing high, but this is just too close to call. We need confirmation of a breakout.