Trading Places with Tom Bowley

S&P 500 Breaks Out To All-Time High

Market Recap for Monday, September 11, 2017

It was a very bullish day on Wall Street.  First and foremost, the benchmark S&P 500 rose more than 1% to close at a fresh all-time high.  Its previous closing high was approximately 2481.  The bulls left no doubt about this breakout, finishing clearly above that 2481 level - at 2488.  Here's the latest:


Note that the latest price low was near 2450 and the rising trendline is now just beneath that level so that's a clear area of support I'll be watching for in the near-term, along with the rising 20 day EMA, currently at 2460.  Those who look for intraday highs to be cleared on the S&P 500 will point to the August 8th high of 2490.87 as key price resistance.  I generally follow the opens and closes, but recognize there could be sellers at that level.  A breakout intraday above 2491 would add to the bullishness enjoyed on Monday.

Among sectors, financials (XLF, +1.74%) surged as the 10 year treasury yield ($TNX) rebounded.  The XLF has hit a very critical area of short-term resistance as reflected below:

The XLF will face channel resistance (red dotted lines), along with the 20 day EMA (red arrow) resistance just overhead.  This morning, the 10 year treasury yield ($TNX) is again on the rise and that will help financial stocks at the open.  But the question will be whether they hang on at the close.  If so, this group turns much more bullish in my opinion.

All nine sectors advanced on Monday and wide participation is EXACTLY what you want to see on a breakout day.

Great action.

Pre-Market Action

There have been no significant earnings or economic reports out this week thus far.  That'll change later in the week, but for now, equities will look to trade off of current technical conditions.  That shouldn't be a bad thing given the S&P 500's highest close ever on Monday.

Global markets continue to perform well with the German DAX ($DAX) rallying strongly again this morning after breaking out as noted below in the Current Outlook section.  The 10 year treasury yield ($TNX) is up again today as well, jumping another couple basis points to 2.15%.  The sudden selling of treasuries - and corresponding rise in treasury yields - should help to lift a beaten-down financial sector.

With a little more than 30 minutes left to the opening bell, Dow Jones futures are higher by 58 points.  This strength should enable the Dow Jones to challenge its highest close ever (22118) at the open this morning.  A breakout to fresh all-time highs will encourage more technical buying, especially since the S&P 500 closed at a new high on Monday.

Current Outlook

There's a very tight positive correlation between stock performance in Germany ($DAX) and performance here in the U.S.  Below is a chart that shows the DAX breaking its down channel to potentially extend its multi-year bull market.  That's great news for performance of our benchmark S&P 500.  Check this out:

The down channel in the German DAX happened to drop almost exactly to the first key Fibonacci retracement level (38.2%) before reversing and breaking out.  The daily MACD confirms the bullish momentum with a centerline crossover and strong positive correlation suggests the strength in both Germany and the U.S. is likely to continue - at least temporarily.

Sector/Industry Watch

While consumer discretionary (XLY) was the weakest sector on Monday, the Dow Jones U.S. Automobiles Index ($DJUSAU) didn't seem to care.  Th group broke out in very bullish fashion, clearing its June high on increasing volume.  Have a look:

I would expect to see additional bullishness in the days and weeks ahead.  Just keep an eye on the rising 20 day EMA as that should provide excellent support on any near-term profit taking.

Historical Tendencies

Stock performance tends to be strongest from the 26th of one calendar month through the 6th of the following calendar month.  There's a second period of historical strength, however, as the 11th through the 18th also tends to be strong.  Since 1971 on the NASDAQ, here are the annualized returns for these two bullish periods:

26th through 6th:  +24.09%
11th through 18th:  +16.81%

September hasn't been as bullish, though, during this 11th to 18th period.  Its annualized return is just 7.44%.  Also, keep in mind that the 20th through the 27th of September has produced annualized returns of -50.43%, so the bulls will be looking to capitalize on yesterday's breakout the balance of this week.

Key Earnings Reports

None

Key Economic Reports

None

Happy trading!

Tom

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