Trading Places with Tom Bowley

Russell 2000 Takes Biggest Hit In Three Months; Watch This Support Level

Market Recap for Tuesday, November 7, 2017

Small cap stocks felt a slight tremor on Tuesday as the Russell 2000 ($RUT, -1.26%) suffered its worst day in nearly three months.  While losses never feel good, I believe the RUT is in a bullish advance similar to the one it enjoyed in 2013 with weekly price momentum accelerating after a 50 week SMA test in August.  That would indicate that the rising 20 week EMA should provide excellent support:


We saw lesser losses on the NASDAQ and especially the benchmark S&P 500, where a final 30 minute rally yesterday almost completely erased a 6 point loss intraday.  Defensive areas of the market aided the market's comeback in the afternoon session with utilities (XLU, +1.20%), consumer staples (XLP, +1.12%) and healthcare (XLV, +0.21%) leading the charge.  Financials (XLF, -1.38%) and consumer discretionary (XLY, -0.60%) were the weakest two sectors.  Travel & tourism ($DJUSTT) were awful performers as priceline.com (PCLN) dropped 13.52% after disappointing traders with its latest quarterly earnings report.  You can check out both in the Sector/Industry Watch section below.

Pre-Market Action

This is a very light week for economic news and earnings reports from the larger companies have slowed down considerably.  Therefore, U.S. stocks are following the lead of global markets and the bond market, the latter suggesting perhaps some consolidation in equity prices after the huge advance off the August low.  Money has rotated somewhat into bonds with the 10 year treasury yield ($TNX) working its way down to the October low near 2.28%.  A falling yield means rising bond prices and every dollar that goes into the bond market is a dollar that won't find its way into the stock market.

Asian markets were mixed overnight and we're seeing fractional losses in most European indices this morning.  That's left traders uninterested in U.S. equities at the moment with Dow Jones futures down 7 points as we approach the start of a new trading day.

Current Outlook

One tool that you can use here at StockCharts.com to look for a potential target during a pullback is the Fibonacci retracement tool.  The initial level of Fibonacci support after an advance occurs at the 38.2% retracement level.  Take a look where this suggests the Russell 2000 could pull back to:

A basic Fibonacci retracement would look for 1451 as a key level of support.  What's interesting about this is that in the Market Recap section, the rising 20 week EMA was shown as potential support on the weekly chart.  So where's that 20 week EMA?  1451.  Things that make you go hmmmmmmmmmm.

Sector/Industry Watch

priceline.com (PCLN) was absolutely hammered on Tuesday after releasing very disappointing quarterly earnings results Monday after the bell.  It lost neckline support in a bearish head & shoulders pattern and did so with massive volume.  While a short-term bounce is always possible, I believe the more intermediate-term will feature a continuing downtrend in price action.  Check out PCLN's chart and its effect on the DJUSTT:

The top of the head down to the neckline is roughly 300 points.  For a measurement of this pattern, we subtract the 300 points from the neckline breakdown near 1750 to project a potential target of 1450.  Keep in mind that PCLN's best seasonal period is from January through April, where it performs unbelievably strong.  I've provided this seasonal information before, but I'll do so again in the Historical Tendencies section below.

Historical Tendencies

priceline.com's (PCLN) seasonal pattern is one of the most remarkable that I'm aware of.  This stock absolutely loves the first half of the year, but can't catch a bid in the second half.  Check this out:

Look at those average monthly returns over the last 19 years.  PCLN has averaged (!) gaining more than 35% in the January through April time frame.  That's simply stunning.  But yesterday's disappointment follows PCLN's seasonal history of not performing well in the second half of the year.

Recently, I wrote a Don't Ignore This Chart blog article on PCLN's misery in what normally is a bullish period (November-December) for most U.S. stocks.  You can check that article out HERE.

Key Earnings Reports

(actual vs. estimate):

ECA:  .30 vs .05 (not sure if comparable)

GPN:  1.15 vs 1.10

HUM:  3.39 vs 3.27

MGM:  .34 vs .33

REGN:  3.99 vs 3.93

ROK:  1.69 vs 1.72

(reports after close, estimate provided):

ALB:  1.07

FOXA:  .48

MFC:  .40

MNST:  .40

SLF:  .78

SQ:  .06

Key Economic Reports

None

Happy trading!

Tom

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