Market Recap for April 2, 2019
The NASDAQ was mostly higher and strengthening throughout the session on Tuesday as internet stocks ($DJUSNS, +1.41%) continued their recent advance to challenge 2019 highs. Facebook (FB, +3.26%) led internet stocks higher and broke out to close at its 2019 high on increasing volume, a bullish sign:
Twitter (TWTR, +0.93) also rose nicely and is on the verge of filling its gap from early February. The DJUSNS is definitely showing improving relative strength and has been since late-November. Check out the Current Outlook section below for an RRG view of the DJUSNS and its relative travels since Q4 2018.
While internet stocks helped communication services (XLC, +0.53%) outperform the broader market, the XLC was not the best performing sector ETF. That prize goes to real estate (XLRE, +0.86%), which surged to another 2019 and all-time high. Stocks like Boston Properties (BSX, +1.59%) are helping to lead the advance in REITs:
During its consolidation phase, BSX had retreated back near its 50 day SMA and its PPO nearly tested centerline support. Since then, BSX has trended higher on heavier volume, resulting in the breakout this week.
Consumer staples stocks (XLP, -0.82%) were the wink link on Tuesday, especially the drug retail group ($DJUSRD, -10.03%) after Walgreens Boots Alliance (WBA, -12.81%) reported quarterly results below expectations and then lowered their future guidance. The DJUSRD is featured in the Sector/Industry Watch section below.
The 10 year treasury yield ($TNX) is up another 4 basis points to 2.52% this morning as money pours out of defensive treasuries for the fourth time in the last five sessions. That's a positive sign for U.S. equities and is accompanying a very solid week for the S&P 500 as it's bounced off rising 20 day EMA support is now less than 3% from its all-time high established in September 2018.
Crude oil ($WTIC) also has been on a steady march higher, closing at $62.58 per barrel on Tuesday. It's up fractionally this morning.
Very solid action in global markets is also spurring more pre-market bullishness here in the U.S. Dow Jones futures are higher by 125 points despite a weaker-than-expected March ADP employment report.
Internet stocks ($DJUSNS) can provide great leadership during bull market advances and I believe that's exactly what we've been seeing from the group. The chart below maps out the improving relative strength over the past 14 weeks, or roughly since the bottom was established in December 2018:
You can follow the strengthening of internet stocks by simply looking at the above chart. It doesn't tell us how internet stocks are doing. It tells us how internet stocks are doing relative to the benchmark S&P 500. When an aggressive area like internet stocks is performing well on a relative basis, it's generally a bullish sign. Below the chart in the table, you can see that the DJUSNS has risen 28.3% over the past 15 weeks, while the benchmark S&P 500 has risen just 18.6%. That outperformance is charted above.
Price relative SharpCharts is another way to measure and visualize relative strength. Let's plot the above relative strength on a SharpChart:
You can see the relative weakness that was present in the second half of 2018 and the relative improvement since late-November. The above price-relative chart is simply one other way of viewing relative strength. The RRG and the price relative chart both point to the same thing - internet stocks are currently a great place to trade to beat the benchmark index.
Drug retailers ($DJUSRD) took a big hit on Tuesday as a Dow Jones component, Walgreens Boots Alliance (WBA) missed its earnings expectations and lowered EPS guidance for the upcoming fiscal year. Wall Street wasn't amused and pounded the drug retail giant. But honestly, we shouldn't be shocked. The DJUSRD has not only been downtrending the past few years, but it's also wildly underperformed the benchmark S&P 500. The stock market has been telling us a story for a long, long time that drug retailers is NOT where you want to be invested. Seriously, do you see anything in this chart that suggests we should invest our money here?
The beauty of technical analysis is that the market tells us stories every single day if we're willing to listen. We want to consider areas of the market that are outperforming our benchmarks. Stay away from drug retailers until their absolute and relative charts improve. It's as simple as that.
Alaska Air Group (ALK) has averaged gaining more than 15% per year over the past two decades, but April through June has not been kind to the airliner:
Clearly, Q4 is when you want to consider ALK on the long side.
Key Earnings Reports
(actual vs. estimate):
AYI: 1.99 vs 1.79
SIG: 3.96 vs 3.77
Key Economic Reports
March ADP employment report released at 8:15am EST: 129,000 (actual) vs 165,000 (estimate)
March PMI services index to be released at 9:45am EST: 54.8 (estimate)
March ISM non-manufacturing index to be released at 10:00am EST: 58.0 (estimate)