Trading Places with Tom Bowley

Large Banks Kick Off Earnings Season

Market Recap for Thursday, July 13, 2017

Financials (XLF, +0.60%) rebounded to lead the market action on Thursday, in anticipation of large bank earnings scheduled to be reported this morning.  The Dow Jones U.S. Banks Index ($DJUSBK) remains in a strong technical pattern, but has room to the downside in the event that reported results or guidance is below expectations.  Here's the current chart:


Gap and price support both reside at or just above the 410 level and the rising 20 day EMA is just above that at 417.  Banks have enjoyed a nice pre-earnings run higher so a pullback "after the news" would not be a shocker.  410 is key short-term support, however.

Thursday was a fairly boring day with more than half the sectors finishing +/- 0.10%.  Only utilities (XLU, -0.35%) saw much selling.

Pre-Market Action

Energy (XLE) has begun to find its footing - at least temporarily - and this morning's nearly 1% rise won't hurt.  Globally, markets were mostly flat overnight while European markets are down slightly as we await the U.S. market's reaction to several key bank reports released this morning.

Dow Jones futures are currently down 4 points with 30 minutes left to the opening bell.

Current Outlook

The Dow Jones' push to record closing highs is accompanied by a negative divergence on its daily chart as shown below:

This negative divergence isn't horrible and could play out over the next week or two, which would coincide with a bearish seasonal pattern for next week.  The bigger issue, however, is that all of our major indices have momentum issues on the longer-term weekly charts, which could present a problem over the balance of the summer.

We remain in a bull market so my outlook is strong for the second half of 2017, but I'd be cautious until we get through the seasonally slow August/September period.

Sector/Industry Watch

I'm still a big fan of biotech stocks ($DJUSBT).  They typically perform strongly throughout the summer months, while many other areas of the market struggle.  In addition, the recent breakout in the DJUSBT has been holding.  After a brief period of consolidation, I fully expect to see strength resume in this key industry group:

While there's a trading range of 1800-1925 in play, weekly momentum has turned quite bullish and the green arrow marks the rising 20 week EMA, currently at 1781.  That, combined with price support near 1800, should provide excellent support during any bouts of selling.  I'm looking for a breakout above 1925 and an eventual move to 2200 to test the July 2015 high.

Historical Tendencies

The NASDAQ is also very bearish next week, with the July 18th through July 24th period producing annualized returns of -45.90% since 1971.

Key Earnings Reports

(actual vs. estimate):

C:  1.28 vs 1.21

INFY:  .24 vs .23

JPM:  1.82 vs 1.57

PNC:  2.10 vs 2.01

WFC:  1.07 vs 1.02

Key Economic Reports

June CPI released at 8:30am EST:  +0.0% (actual) vs. +0.1% (estimate)

June Core CPI released at 8:30am EST:  +0.1% (actual) vs. +0.2% (estimate)

June retail sales released at 8:30am EST:  -0.2% (actual) vs. +0.1% (estimate)

June retail sales ex-autos released at 8:30am EST:  -0.2% (actual) vs. +0.2% (estimate)

June industrial production to be released at 9:15am EST:  +0.3% (estimate)

June capacity utilization to be released at 9:15am EST:  76.8% (estimate)

May business inventories to be released at 10:00am EST:  +0.3% (estimate)

July consumer sentiment to be released at 10:00am EST:  95.1 (estimate)

Happy trading!

Tom

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