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Stock Market Stages Negative Reversal, But Gold Stocks Show Strength

U.S. stock indexes staged a negative reversal Tuesday as the market wrapped up a half session. The stock market will be closed Wednesday for the July 4 holiday.

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The Nasdaq fell 0.9%, while the S&P 500 and the Dow Jones industrial average eased 0.5% each. But the S&P SmallCap 600 advanced 0.2%.

Volume was up on both major exchanges vs. the same time Monday, but eventually fell because of the shortened session.

Gold-mining stocks posted some of the day’s best gains. Royal Gold (RGLD) broke out in strong volume, clearing a consolidation that began in September. Royal Gold is expected to grow earnings 25% this year.

President Trump’s trade war continues to weigh on the stock market. Politico reported that traditional Republican allies in corporate America are resisting Trump’s protectionism.

On Saturday, a leak outlined China’s strategy. China Digital Times published leaked documents that said China’s plan would involve “splitting apart different domestic (economic) groups in U.S.”

The propaganda notice to state-controlled media in China advised against reporting President Trump’s comments; called for calm and rationality; urged against a war of insults; ordered an emphasis on economic bright spots; and called for playing down correlations between the stock market and the trade conflict.

The correlation between stock indexes and the trade war is fairly clear. Trump fired the first shot in the trade war Jan. 22 when he announced tariffs on solar panels and washing machines. Additional measures followed.

The S&P 500 peaked Jan. 26 and then turned choppy, intensifying a decline in early February. The Shanghai Composite peaked Jan. 29 and then slid as much as 24%, reaching bear-market levels.

The Shanghai Composite rose 0.4% Tuesday.

Oil Stocks Falter

In the blue chip Dow Jones industrial average Tuesday, oil stocks Exxon Mobil (XOM) and Chevron (CVX) led early in the session but then turned negative. West Texas intermediate crude oil rose $75.27 a barrel and then reversed to under $74.

Light sweet crude oil is finding resistance near the $75 price level.

In the S&P 500, oil explorer Apache (APA) scored an index-leading 4% gain, then gave back all of the pop.

In the IBD 50, a list of some of the best stocks in fundamentals and technicals, electronics parts maker Kemet (KEM) cleared a 25.79 buy point in a cup-with-handle base but then fell back under the buy point. The base is 50% deep, which is far from ideal. Deep bases are problematic because a stock can exhaust itself climbing through all that overhead supply.

Overhead supply refers to share purchases that occurred on the chart’s left side. In other words, the stock dragged many investments under the break-even line. As the stock hits the old buy levels, many investors will sell for a break-even trade. This creates resistance.

Financial Data

IBD’s Economic Optimism  Index rose 4.6% to 56.4 in July. The index has been positive for 22 months in a row. A reading above 50 signals optimism.

Factory orders for May rolled in at 0.4% growth vs. the prior month, above the consensus view for 0.0%.

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