Trading Places with Tom Bowley

Early Losses Result In Successful Moving Average Tests; Overbought Conditions Unwinding


Market Recap for Thursday, November 9, 2017

Energy (XLE, +0.30%) returned to the top of the leaderboard and this is what's likely to irritate the bears in the future.  We now have another sector that's technical capable to take on new money as money rotates elsewhere.  It's the beauty of a bull market.  Wide participation means a lot of choices.  The problems begin when breakdowns occur in several areas and money can't find a new technical home.  Consumer discretionary (XLY, +0.15%) also had a solid day considering the overall market weakness as its recent breakout is also encouraging buyers - even on down market days.

Weak MACDs suggest that price momentum is slowing in key sectors like industrials (XLI, -1.25%), but money leaving that area found a home in energy and consumer discretionary.  So the bears' frustration continues as the early morning weakness resulted in key moving average tests that were successfully defended.  Building materials & fixtures ($DJUSBD) is a perfect example of the industrials in aggregate.  Look at this chart:

The slowing momentum (negative divergence on MACD) resulted in a 50 day SMA test and its MACD is now approaching a "reset" at or near centerline support.

Pre-Market Action

In a morning of little economic or earnings news, Dow Jones futures are slightly lower, down 46 points as we approach a brand new trading day.

Current Outlook

On the surface, it's always scary to see stock prices decline.  That enables all the doom and gloom "experts" to reappear on CNBC to tell everyone to sell stocks now as the "big one" approaches.  The big problem with parabolic rises like the one we've seen since mid-August is that they're unsustainable and when the dam breaks, selling can intensify quickly.  Then the media jumps on board.

Stay the course.

Bear markets do not just begin out of the blue.  At least that's not how they've started in the past.  They take time and they take significant rotation and shifts.  They take fear and high volatility.  We have little of that right now.  Instead, yesterday was another example of buyers jumping in on every opportunity.  Reversals could be seen in almost every corner of the market on Thursday.  The Dow Jones, S&P 500 and NASDAQ all threatened to break below their respective rising 20 day EMAs, only to see buyers supporting prices there.  The Russell 2000, a laggard of late, broke beneath its 50 day SMA before rallying to close above it.  Smart money continues to buy these dips while the perma-bears once again try to pile on with the first sight of any selling.

Here are the key short-term levels of support to continue watching:

On the S&P 500, the very first price support level would be in the 2545-2550 area.  Breaking that would certainly embolden the bears and likely result in a trip down just above 2500, resetting the MACD at centerline support in the process.  Note that the daily RSI on the S&P 500 is already down to 63 as these brief periods of selling are helping to unwind the major overbought conditions.  It will take a few weeks of consolidation and/or selling to help relieve the weekly RSI issues, but let's take things one step at a time here.

Sector/Industry Watch

The Dow Jones U.S. Broadcasting & Entertainment Index ($DJUSBC) has begun to show solid volume to support recent upward price action and a major beneficiary is Walt Disney (DIS).  DIS saw a recent golden cross (20 day average rises above 50 day average) and solid volume to confirm it, but there's a key price resistance level needed to clear:

The failure at price support is short-term concerning, but the technical picture here is turning much more bullish in my view.  I'd look to that rising 20 day for support on any pullback.

Historical Tendencies

As we approach year end, we begin running into very bullish historical periods.  On the NASDAQ, one such period begins November 23rd.  From that date through December 5th, the NASDAQ has produced annualized returns of +51.97% since 1971.

Key Earnings Reports

(actual vs. estimate):

MT:  1.18 vs .86

Key Economic Reports

November consumer sentiment to be released at 10:00am EST:  100.0 (estimate)

Happy trading!


Tom Bowley
About the author: co-founded Invested Central and served as the site's Chief Market Strategist for more than 10 years. His unique trading style combines both his fundamental and technical strategies to systematically manage risk while trading. A regular contributor to's bi-weekly ChartWatchers newsletter since 2006, Tom's role at StockCharts has expanded significantly since he joined the company as a full-time Senior Technical Analyst in March of 2015. Learn More
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