Trading Places with Tom Bowley

Apple Soars, Trade Fears Send Futures Plummeting

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Market Recap for Wednesday, August 1, 2018

Wednesday was a day of bifurcated action with Apple (AAPL) leading technology (XLK, +0.90%) and the NASDAQ higher, while the Dow Jones, S&P 500, Russell 2000 and most sectors finished lower.  It was a case of one behemoth, nearly $1 trillion company attempting to carry the rest of the stock market on its shoulder.  AAPL finished the trading day with a market cap of $990 billion.  While the attempt to lift the entire market was failing at around 2pm EST, our major indices did rally a bit after the FOMC announced they were leaving rates unchanged, as expected.


Three sectors lost more than 1% on Wednesday - energy (XLE, -1.39%), industrials (XLI, -1.35%) and materials (XLB, -1.02%).  Crude oil prices ($WTIC) slumped after release of a U.S. crude oil inventory build.  That, combined with disappointing quarterly earnings reports from a few notable energy companies, put pressure on the XLE.  The XLE's largest component, Exxon Mobil (XOM, approximately 23% of the XLE), fell to its lowest level in more than a month, further pressuring the sector ETF.

Industrials did an "about face", abruptly turning from the best performing sector on Wednesday to one of the worst yesterday.  Its industry components did the same as Wednesday's leader, commercial vehicles & trucks ($DJUSHR, -2.60%) gave back most of its Wednesday gains:

The PPO has been strengthening, but we've seen this before during the down channel.  It appeared that the group was breaking out in May, only to turn back into the channel.

Pre-Market Action

The 10 year treasury yield ($TNX) closed yesterday at a key short-term yield resistance level at 3.00% with its sights set on the May high of 3.11%.  That goal is being put on hold this morning, as trade fears have money scurrying back into the treasury market with the corresponding TNX falling back to 2.98% in early action.  Crude oil prices ($WTIC) have moved lower, nearing $67 per barrel and gold ($GOLD) is down a few bucks, but still hanging just above the $1220 per ounce level.

Asian markets were rattled by renewed trade fears overnight and Europe isn't reacting any better.  The German DAX ($DAX) is currently down 200 points, or 1.58%, to lead Europe lower.

Despite a positive outlook for Tesla (TSLA), U.S. futures are under pressure this morning.  With 45 minutes left to the opening bell, Dow Jones futures are lower by 153 points.

Current Outlook

There's been much discussion about trade tensions, wars, fears, etc. and it's back in the headlines this morning with the U.S. considering ratcheting up tariffs on China.  While China has retaliated and threatened additional measures, traders have clearly bet on the U.S. winning this battle:

The S&P 500 was already strengthening vs. China's Shanghai Composite prior to the trade talks.  That strength has escalated over the past few months as trade barbs have been exchanged.  While we have no idea how this will all play out in the end, traders do get the sense that eventually a deal will be struck that favors the U.S.

Sector/Industry Watch

One day after featuring the breakout in industrials (XLI), the group retreated and yesterday gave back most of its Tuesday gains.  I've seen many false breakouts and, while I'm never a fan, I do like the recent relative strength in this group along with the bullish and accelerating PPO.  A rising 20 day EMA should hold as support on any further weakness:

If the 20 day EMA holds as support and we clear Tuesday's high, it's further confirmation that a new uptrend is underway.  If, however, we lose 20 day EMA support, I'd be careful as it could suggest more whipsaw action and short-term selling, which is not unusual during the months of August and September.

Historical Tendencies

One NASDAQ 100 stock that despises the month of August is J.B. Hunt Transport Services (JBHT).  Over the past two decades, JBHT has fallen 16 of 20 Augusts and has produced average monthly returns of -4.0%.  Technically, recent failures at the declining 20 day EMA are currently pointing to lower prices as well:

Key Earnings Reports

(actual vs. estimate):

AET:  3.43 vs 3.07

BCS:  .43 vs .29

BDX:  2.91 vs 2.85

CI:  3.89 vs 3.33

CLX:  1.66 vs 1.58

CNQ:  .79 vs .58

CTSH:  1.19 vs 1.10

DUK:  .93 vs 1.03

DWDP:  1.37 vs 1.33

EXC:  .71 vs .61

GPN:  1.29 vs 1.22

ICE:  .90 vs .89

K:  1.14 vs 1.05

PH:  3.22 vs 2.91

REGN:  5.45 vs 4.74

WLTW:  1.70 vs 1.67

YUM:  .82 vs .74

ZTS:  .77 vs .71

(reports after close, estimate provided):

AIG:  1.19

ANET:  1.72

ATVI:  .36

BMRN:  .17

CBS:  1.11

CERN:  .60

ED:  .57

EOG:  1.25

FLT:  2.52

MSI:  1.37

PBA:  .42

SEP:  .76

Key Economic Reports

Initial jobless claims released at 8:30am EST:  218,000 (actual) vs. 218,000 (estimate)

June factory orders to be released at 10:00am EST:  +0.9% (estimate)

Happy trading!

Tom

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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