Trading Places with Tom Bowley

Expect Small Caps To Continue To Provide Leadership

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Market Recap for Monday, June 11, 2018

U.S indices finished with across-the-board gains on Monday despite a final 30 minute selloff that saw the Dow Jones trim a 70 point gain down to just 5 points.  Still, stocks managed to start the week with minor gains ahead of a historic meeting between a sitting U.S. President and North Korea.  Consumer stocks were strong with consumer staples (XLP, +0.83%) bouncing and clearing important technical hurdles:


Note that the RSI cleared 60 in addition to the PPO moving above its centerline.  A positive and rising PPO is a signal of bullish and accelerating price momentum, respectively.  The four month downtrend line has been broken and the XLP has traded above its 50 day SMA for two consecutive sessions.  All of this points to further gains in the days and weeks ahead.  The next stop technically for the XLP would be the mid-April high from 53.00-53.50.

Consumer discretionary (XLY, +0.40%) also performed well as consumer stocks now fashion a 1-2 bullish technical punch.  The XLY has been the best performing sector ETF over the past month and trails only energy (XLE, +0.52%) as the best performing sector the past three months.

Pre-Market Action

Asian shares were modestly higher overnight, while European shares are fractionally lower.  In the U.S., Dow Jones futures are down 16 points with roughly 50 minutes left to the opening bell.

Tesla (TSLA) looks to continue its recent tear higher as Keybanc Capital raised revenue estimates for the automaker.

Current Outlook

Small caps have been leaders the past few months as the rising dollar ($USD) has forced rotation into stocks not hurt by a higher greenback.  U.S treasury yields continue to rise much faster than in other parts of the world, especially Europe, and that should provide further tailwinds for a rising dollar.  I am therefore expecting further relative strength in small caps.   Here's the current three month chart:

Initial support at 1660 results from last week's price low, while a more compelling short-term support level results from the double top breakout earlier in June near 1650.

Sector/Industry Watch

Media agencies ($DJUSAV) is attempting to close above its 50 week SMA for only the second time in the past 18 months.  It would be a significant technical development, especially since consumer discretionary stocks in general are seeing money rotate into that space:

Thus far, the DJUSAV is holding critical price support near 520.  A close above 570 would be a bullish short-term development, although 590 is likely the most critical level to clear in order the break its current 2 year absolute and relative downtrend.

Historical Tendencies

June is a decent month for the NASDAQ as it's produced annualized returns of +9.24% since 1971.  However, not all June days are created equal.  In fact, check out this breakdown of annualized June performance for the NASDAQ:

June 1-5 plus June 28-30:  +62.82%
June 6-27:  -12.53%

The overall strength in June is completely due to the first five and last three calendar days of the month.  That's typical for most calendar months, but especially so for June.

Key Earnings Reports

(reports after close, estimate provided):

HRB:  5.26

Key Economic Reports

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

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

FOMC meeting begins today

Happy trading!

Tom

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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 StockCharts.com'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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