Market Recap for Friday, May 19, 2017
Industrials (XLI, +1.32%) and energy (XLE, +1.23%) were the two clear leaders on Friday. The XLI represents one of the four aggressive sectors in the market so it's always nice to see strength there. Commercial vehicles ($DJUSHR) had a huge day, rising more than 3% and are featured below in the Sector/Industry Watch. While the XLE was strong, one of the key areas - pipelines ($DJUSPL) - lagged and could pose problems for two reasons. First, there are technical issues which are illustrated below:
There's a very weak MACD that tells us sellers remain in control here. Recent tests of the falling 20 day EMA have failed and there's overhead price resistance close to 680. The 20 day EMA is at 675, so that range from 675-680 is big resistance that needs to be cleared before technical conditions will improve. The second problem with this group relates to its historical performance. That's featured below in the Historical Tendencies section.
Friday's lagging sectors included the three defensive sectors - healthcare (XLV, +0.28%), utilities (XLU, +0.39%) and consumer staples (XLP, +0.54%). While these three groups struggled on a relative basis, they did manage to finish higher as all nine sectors participated in the Friday advance.
Pre-Market Action
Dow Jones futures are poised to open higher this week with a 27 point pre-market gain just 30 minutes from the opening bell. Crude oil ($WTIC) closed last week back above $50 per barrel and it's jumped another 1.17% this morning to approach $51 per barrel.
Current Outlook
Once again, when the market rallies, fear subsides. That's a signal of a continuing bull market. The Volatility Index ($VIX) dropped nearly 18% during Friday's stock market rally. That came on the heels of a very steep rise earlier in the week. Normally, extended selling will be accompanied by fear levels remaining elevated. That was not the case on Friday so I'm looking for more strength in U.S. equities as we kick off a new week.
Sector/Industry Watch
Industrials (XLI) were the leading group on Friday and strength in commercial vehicles ($DJUSHR) was a big reason. The group had a major reversal on Thursday off its 50 day SMA and that bounce continued in a big way on Friday. I'd expect more strength within its current bullish channel. Check it out:
You can see that the RSI is just beginning to bounce from the 40s - where it's generally bounced since this uptrend began back in November.
Monday Setups
Every Monday, I like to take a look at a potential trading candidate. It could be one ready for entry or a set up. This week PVH Corp (PVH) appears primed for a pre-earnings run higher after posting very solid results in March. PVH tested gap support from its prior earnings reaction on Friday and could see renewed strength as traders await their next report in June. Here's the chart:
104 has proven to be very difficult price resistance so a close above that level would likely lead to more technical buying.
Historical Tendencies
The Dow Jones U.S. Pipelines Index ($DJUSPL) is one of the worst performing industries during the month of June and it doesn't get much better historically until October. Check this out:
Over the past 18 years, June has averaged producing 2.0% losses and that makes June the worst calendar month in that regard (along with September).
Key Earnings Reports
(actual vs. estimate):
BAH: .45 vs .43
SCCO: .41 vs .42
(reports after close, estimate provided):
A: .48
NDSN: 1.30
PRGO: .98
Key Economic Reports
None
Happy trading!
Tom
