Market Recap for Wednesday, November 18, 2015
There was strength everywhere on Wednesday. All nine sectors were higher and utilities represented the only sector that was not higher by at least 1%. Healthcare (XLV) rallied 1.95% while materials (XLB) and financials (XLY) both rose by an identical 1.78%. The participation in the rally was so strong that only three industry groups failed to rise - telecommunications equipment ($DJUSCT), mobile telecommunications ($DJUSWC) and brewers ($DJUSDB). The former two are at or approaching significant price support while the latter has been THE strongest industry group over the past three months BY FAR, nearly doubling the return of any other sector. I think it's okay if we give the brewers a one day pass after their three month binge. Here's a quick analysis of all three of these non-performing groups from Wednesday:
Nice gains overnight in Asia have been followed up by very strong action in Europe this morning and both of these developments are aiding the bulls here in the U.S. with futures higher. The action this week has been quite bullish given the end of week turmoil last week. Bull markets are made of resiliency and we've certainly seen our fair share of that this week. Particularly encouraging is the breakout this morning in the German DAX, which is highly correlated (positively) to the S&P 500. Short-term technical behavior in German shares is clearly bullish with the recent bounce off of rising 20 day EMA support and this morning's breakout to confirm the uptrend. There is plenty of work to do on the intermediate-term chart as prior 2015 highs will need to be cleared. But the good news is that this is the time of the year for strength in Germany. The next two charts shows the current technical state of the DAX, followed by its historical tendencies to close out the calendar year:
The first chart reflects key trendline resistance and short-term price resistance intersecting near the 11000 level. What the chart doesn't reflect is this morning's action. The DAX, at last check, was up 1.4% this morning and trading just above the 11100 level. Clearly, a strong finish today would suggest higher prices ahead for the DAX. The second chart provides historical tendencies for the DAX over the past 20 years. The DAX has risen more than 9% in the past month and the technical breakout is likely to add to it. We're in the midst of the strongest historical period of the calendar year so it's difficult to be overly bearish.
We remain in a consolidation phase, but I'm very encouraged by the significant gains this week across our major indices and sectors. I continue to believe that we are basing during a period of correction rather than starting a bear market. The relationship between transportation stocks and utilities is showing strength once again, a sign of improving economic conditions ahead. Any time this relationship is trending higher, I grow more bullish and recent developments have been bullish for sure. Check this out:
The level to watch is 14.80. A relative breakout above that level would be very encouraging and add to the underlying strength of the current rally.
The one group that really seems ready to make a big push higher, especially if seasonal trends the balance of the year prove to be correct is the travel & tourism group ($DJUSTT). First, the November through April period tends to be VERY strong for this group. Thus far in November, it's been a rough time for travel stocks. But taking a look at a longer-term weekly chart, the 2.4% advance on Wednesday could be the start of something much larger. Look at the chart and visualize the trendline support and reversing candle this week:
This group has been basing for nearly two years. After a false breakout in October, the early November weakness took the DJUSTT back to trendline support. The long tail on this week's candle shows that the group has recovered strongly off earlier lows this week. Should this group close below 550 and lose trendline support, we'd need to reevaluate. But based on the action currently, it seems as though this rally is just getting started. Ctrip (CTRP) is up 10% this morning in pre-market action based on a very strong earnings report after the bell last night.
Historically, we're in a period that typically is bearish. Clearly, the two worst days of this week are today and tomorrow where the NASDAQ has produced annualized returns of -115.08% and -89.13%, respectively, since 1971. There have been 31 days higher and 32 days lower over these two days during the NASDAQ's history so the odds of going up are roughly 50/50. However, when the NASDAQ goes lower, the tendency is to go MUCH lower so at least be aware of that.
Key Earnings Reports
(actual vs. estimate):
BBY: .41 vs .35
BKE: .74 vs .77
SJM: 1.62 vs 1.52
(reports after today's close, estimate provided):
Key Economic Reports
Initial jobless claims released at 8:30am EST: 271,000 (actual) vs. 270,000 (estimate)
November Philadelphia Fed business outlook survey released at 8:30am EST: +1.9 (actual) vs. +0.0 (estimate)
October leading indicators to be released at 10:00am EST: +0.5%