Trading Places with Tom Bowley

Wall Street Record High Winning Streak Stretches To Four

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Market Recap for Wednesday, August 29, 2018

It was another ho-hum day of records on Wall Street with the S&P 500, NASDAQ and Russell 2000 all closing at all-time record highs for the 4th consecutive session.  The Dow Jones has yet to clear its January 2018 record high close of 26,616.71, but it's within 500 points, or just under 2%, of doing so.  At that January high, the U.S. Dollar Index ($USD) was at 88.50.  The USD is currently at 94.52, even after its two week decline.  The rise in the dollar has had its biggest negative impact on the 30 multinational comglomerates that derive much of its revenue and earnings from foreign countries.  Those foreign profits have been significantly reduced as they've been translated into dollars and that's been the primary headwind for the group.  Also, interest rates have been rising more quickly into the U.S., likely reflecting a more rapidly rising economic outlook.  That too has caused money to rotate away from Dow components.


On Wednesday, consumer discretionary (XLY, +1.12%) and technology (XLK, +0.91%) were atop the sector leaderboard and that's what bulls want to see.  Aggressive sectors leading breakouts to all-time highs.  Amazon.com (AMZN) jumped more than 3% on Wednesday, leading a very strong broadline retail group ($DJUSRB, +2.67%).  AMZN closed yesterday with a market cap of $974 billion.  Another 3% jump would result in AMZN becoming the second company to reach the $1 trillion market cap milestone, joining Apple (AAPL), which now sports a $1.07 trillion value.  Recreational services ($DJUSRQ, +1.30%) also were strong and are covered rather extensively in today's blog article.  Check out both the Sector/Industry Watch and Historical Tendencies sections for more information there.

Internet stocks ($DJUSNS, +0.84%) were among the technology leaders - along with computer hardware ($DJUSCR, +1.35%) and software ($DJUSSW, +1.35%) - but there was notable missing strength from Facebook (FB), which continues to drift lower and fail to clear its 20 day EMA:

Honestly, another big drop in internet stocks is probably the bears' best hope of a September drop in the overall market.  Facebook losing key support at 170 would be BIG news because of its FAANG relationship and all the attention it gets.  In my opinion, FB goes lower while the overall market goes higher.  Time will tell.

Pre-Market Action

Initial jobless claims, personal income and personal spending all were reported this morning in line with expectations.  Crude oil ($WTIC) has been steadily rising since bouncing off support in the $64-$65 per barrel range.  This morning, it's on the verge of eclipsing the $70 per barrel level, a level it's struggled with over the past 5-6 weeks.  At last check, the WTIC was up 0.55% to $69.89 per barrel.  Gold ($GOLD) is flat as the U.S. Dollar ($USD) is rising against foreign currencies and attempting to snap a downtrend that's now covered two weeks.

Global markets are mostly lower as a bit of profit taking kicks in.  That's carrying over to the U.S., where Dow Jones futures are lower by 69 points with roughly 20 minutes left to the opening bell.

Current Outlook

I am rarely going to utter bearish words when the S&P 500 and NASDAQ are breaking out to all-time highs and two key industry groups - consumer discretionary (XLY) and technology (XLK) - are doing the same.  And that's exactly what we're seeing now:

We're going higher in the fourth quarter.  I know we're overbought and we could see a pullback at any time, but this is NOT how a bear market sets up.  Money continues to rotate towards aggressive areas of the market to accompany all-time highs.  In my opinion, you want to be fully invested in the stock market, buying outperforming sectors and stocks at every opportunity.

Sector/Industry Watch

Below I provide the bullish historical tendency for recreational services ($DJUSRQ) as we enter the months of September and October.  It won't hurt that the technical conditions have improved as well:

The RSI has moved above 70 for only the second time in 2018.  I expect to see outperformance from this group over the next several months, but a pullback is needed.  A test of the rising 20 day EMA (green arrow) would be a great time to look for entry in a stock within this space.

Historical Tendencies

Recreational services ($DJUSRQ) historically performs its best during September and October, where it's enjoyed average monthly returns of +2.8% and +1.2%, respectively, over the past 15 years.  It's also risen 69% of Septembers and 77% of Octobers over that span, its two highest such readings of the year.

Key Earnings Reports

(actual vs. estimate):

BURL:  1.15 vs .97

CIEN:  .48 vs .35

CPB:  .25 vs .25

DG:  1.52 vs 1.49

DLTR:  1.15 vs 1.17

MIK:  .15 vs .13

TD:  1.28 vs 1.23

(reports after close, estimate provided):

COO:  3.08

LULU:  .49

NTNX:  (.22)

ULTA:  2.40

Key Economic Reports

Initial jobless claims released at 8:30am EST:  213,000 (actual) vs. 214,000 (estimate)

July personal income released at 8:30am EST:  +0.3% (actual) vs. +0.3% (estimate)

July personal spending released at 8:30am EST:  +0.4% (actual) vs. +0.4% (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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