Trading Places with Tom Bowley

Bifurcated Friday Session For Major Indices, Sectors

Market Recap for Friday, September 8, 2017

The NASDAQ fell on Friday mostly due to a very weak technology sector (XLK, -0.82%).  Computer hardware ($DJUSCR) tumbled as Apple (AAPL) closed well below its 20 day EMA on heavier than normal volume for the first time since its big drop back in the second week of June.  Here's the technical damage on AAPL:


The blue circles and arrows highlight the last two above average volume price declines beneath the 20 day EMA.  The last time resulted in a period of selling, consolidation and volatility for AAPL.  It'll be interesting to see if more volatile price action follows suit again this time.

Internet ($DJUSNS) and semiconductor ($DJUSSC) stocks both fell more than 1% on Friday and both also reflect nasty negative divergences on their weekly charts.  Thus far, however, both have managed to remain above their rising 20 week EMAs.  I'd look for accelerated selling if those 20 week EMAs are lost in the coming weeks.

The Dow Jones managed to eke out a small gain on Friday, thanks in part to a rebounding financial sector (XLF, +0.92%).  The hallmark of a bull market is its ability to find strength in some sectors while others are weak.  Friday's action demonstrated how that works as all of our major indices remained comfortably above major price support despite significant selling in one of the best performing sectors of 2017 (technology).

Pre-Market Action

Airlines ($DJUSAR) and many insurers, especially property & casualty insurers ($DJUSIP) are set to rally this morning as Hurricane Irma, while devastating in parts of Florida, never lived up to the catastrophic effects that many meteorologists were forecasting last week.

The 10 year treasury yield ($TNX) is up more than five basis points to 2.11% and gold ($GOLD) is down nearly 1% as the safe haven trade of last week falters in early action this morning.  We've seen mostly strength across global indices overnight and this morning and that's setting the U.S. market up for sizable gains at today's open.

With 30 minutes left to the opening bell, Dow Jones futures are higher by more than 100 points.

Current Outlook

The NASDAQ's weakness last week could be viewed as the handle of a cup with handle pattern.  If we rally from here and clear the 6460 level, a measurement to approximately 6720 is what we should expect.  Take a look:

Last week, the NASDAQ was able to hold its rising 20 day EMA on each bout of selling.  That would be a key to this pattern remaining viable.  Loss of that rising 20 day EMA would be the first bearish step towards returning to recent lows and further sideways consolidation that began off the last July high.

Sector/Industry Watch

The Dow Jones U.S. Waste & Disposal Services Index ($DJUSPC) rallied 1.43% on Friday and is nearing a very significant breakout level that's worth watching.  Take a look:

The blue arrow shows that volume was moderate on the Friday advance.  I'd like to see even more volume to confirm a breakout above clear price resistance near the 238 level (red arrows).  If you look at a weekly chart (not shown above), you'll see that the DJUSPC has been struggling these past several months as it works off an ugly negative divergence on its weekly MACD.  A breakout after this period of consolidation would be bullish.

Monday Setups

I like the opportunity set up by recent selling in Analog Devices (ADI).  After gapping higher on strong volume following its better-than-expected earnings report, ADI fell back all last week to relieve overbought conditions.  I like entry at the current price and possibly again at the rising 50 day SMA, if tested.  Consider a stop below 77.50 and look for a target price of 88.00 to challenge the high candle body from late May.  Here's the chart:

I'll provide additional setups in the Trading Places chartlist that you can find by CLICKING HERE.

Historical Tendencies

Ulta Salon (ULTA) and Celgene (CELG) are the two best performing stocks in the NASDAQ 100 during the month of September, with average gains of 15.9% and 8.3%, respectively.  CELG has performed mostly according to plan, rising above long-term resistance at 140 in the first several days of September.  ULTA also has been rising, but currently faces a major technical test at gap resistance and its declining 20 day EMA.  Check this out:

ULTA was a darling of Wall Street for a long, long time, but I believe faces one of its most difficult challenges of resistance.  A break above both the declining 20 day EMA and gap resistance would be short-term bullish.  And remember, ULTA averages gaining more than 15% during the month of September over the past 11 years.

Key Earnings Reports

None

Key Economic Reports

None

Happy trading!

Tom

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