Trading Places with Tom Bowley

The NASDAQ Is Showing Little Signs of Topping

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Market Recap for Friday, March 1, 2019

U.S. equities rallied strongly at the open on Friday, then gave back most, if not all, of those gains by late morning, and finally rallied once again in the afternoon.  While intraday volatility was high and different, the end result was what we've grown accustomed to in 2019 - a higher close.  Leadership came from small cap stocks as the Russell 2000 gained 0.89%.  Overhead price resistance from the November and December reaction price highs looms as a major obstacle:


The one major difference between now and those highs in 2018 is that the Russell 2000's PPO is quite bullish.  In other words, the bulls are in control now whereas the bears had complete control in Q4 2018.

Energy (XLE, +1.84%) and healthcare (XLV, +1.42%) provided leadership for the bulls on Friday with the former's strength somewhat surprising given crude oil's ($WTIC, -2.48%) retreat and the dollar's strength (UUP, +0.39%).  That combination is typically lethal for energy stocks.  In healthcare, every industry group gained at least 1%, but the real strength continues to be found in medical equipment stocks ($DJUSAM, +1.72%), which broke out on Friday to an all-time high close:

The DJUSAM is a great area of the market to find trading candidates to beat the benchmark S&P 500.  Why?  Because it's not only showing absolute strength (ie, breakout to all-time high), but it's also showing tremendous relative strength vs. that benchmark S&P 500.  Analysts visit companies frequently and, if they like what they hear, they accumulate companies with strong growth prospects and management team's that are executing.  We should want to own these companies too.

After the close today, I'll be joining John Hopkins, President of EarningsBeats.com, for an educational webinar and I'll be discussing how to go from "a great looking industry group" to "finding the right stocks to trade within that industry group".  If you'd like to join me and John, CLICK HERE to register for the event.  It starts at 4:30pm EST and will likely reach room capacity, so be sure to arrive early (as close to 4:00pm EST as possible).  EarningsBeats.com will provide you instructions for attending.

Pre-Market Action

Treasury yields are mostly flat this morning, while crude oil ($WTIC) jumps more than 1% and gold ($GOLD) falls nearly 1%.  Asian markets rose overnight as anticipation is growing for a US-China trade deal.  Stocks are green in Europe this morning as well.  That global strength is carrying over to the U.S. this morning as Dow Jones futures are higher by just over 100 points with 30 minutes left to the opening bell.

Current Outlook

The 10 week rally appears to be an unabated march to the upside.....and that's exactly what it's been.  In order to see consolidation and a possible period of (gasp!) selling on the daily charts, we'll need to see that first develop on the hourly charts.  From the NASDAQ chart below, broken price resistance has been holding as price support.  I'd expect more of the same, in terms of stock market strength, until we see a short-term breakdown on the hourly charts:

In addition to a possible break of key price support, another topping signal would be a heavy volume reversing candle on the daily chart, perhaps a bearish engulfing or shooting star candle.

Sector/Industry Watch

Gambling stocks ($DJUSCA) love the months of March and April, as I discuss below in the Historical Tendencies section.  Technically, the group fell 2.69% last week to sit just a couple points below its 20 day EMA and slightly above its recent price low:

The 750 level served as key price resistance on the attempts to rally in November and December.  After clearing 750, that level now becomes critical price support to the downside.  Volume trends have been solid so look for buying to resume sooner rather than later.

Monday Setups

I'm going out on a limb this week with Symantec Corp (SYMC).  It's been a big laggard in the software area ($DJUSSW), but did recently report strong quarterly results.  Since that time, we've seen a period of consolidation and SYMC now resides closer to key support:

Entry at the current price with a second entry at 21.90 would average into a position at 22.21.  Consider a closing stop beneath 20.90 and a target of 30.00.

Historical Tendencies

Over the last two decades, gambling stocks ($DJUSCA) have been big winners during March and April.  They've averaged gaining 9.4% over these two months since 1999:

March and April have produced average monthly returns of 3.1% and 6.3%, respectively, over the past 20 years.  The DJUSCA is currently testing its rising 20 day EMA in an uptrend as March gets underway.  I'd expect a bounce off this moving average, especially given the seasonal tailwinds.

Key Earnings Reports

(reports after close, estimate provided):

CRM:  .56

Key Economic Reports

December construction spending to be released at 10:00am EST:  +0.6% (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 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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