Trading Places with Tom Bowley

NASDAQ Breaks Out, Sets New All-Time High

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Market Recap for Tuesday, April 23, 2019

The small cap Russell 2000 led our major indices higher, gaining 1.61%, but the day clearly belonged to the NASDAQ, which not only climbed 1.32%, but broke to new all-time intraday and closing highs.  The NASDAQ pierced the 8109.69 level that had been the previous closing high set on August 29, 2018.  Healthcare (XLV, +1.58%) sparked the rally, but there was wide participation.  Communication services (XLC, +1.34%), consumer discretionary (XLY, +1.20%) and technology (XLK, +1.09%) also led on a relative basis and these aggressive sectors should always be closely watched during rallies.  The XLY and XLK have both broken out on a relative basis, further confirming the sustainability of this advance:


Yesterday marked the NASDAQ's breakout, but money has been rotating ahead of this breakout.  Technology broke out in March and consumer discretionary broke out earlier in April....to all-time relative highs.  Wall Street has been placing its bets on aggressive stocks and that typically means one thing.  We're going higher.

Earnings season is kicking in and consumer staples (XLP, -0.32%), unfortunately, struggled to keep up with the overall market after a negative reaction to Proctor & Gamble's (PG, -2.69%) quarterly report.  However, most earnings are coming in ahead of expectations with mostly positive reactions to those earnings.  I realize there are still lots of companies gearing up to report, but with early results in, it certainly appears that earnings could be the catalyst to take our major indices much higher.

Pre-Market Action

The 10 year treasury yield ($TNX) is down 4 basis points this morning to 2.53%, but this rotation into treasuries doesn't seem to be having much of a negative impact on U.S. equities as Dow Jones futures are up 9 points as quarterly earnings pour in.

Occidental Petroleum (OXY) has now offered $76 per share for Anadarko Petroleum (APC), outbidding Chevron, as a bidding war emerges.  Crude oil ($WTIC) pushed above $66 per barrel on Tuesday, but is flat thus far this morning.

To help illustrate how bullish things have become, Boeing (BA) has pulled its 2019 guidance and paused its share buyback program after posting its quarterly results and is trading higher.  It still has technical issues for sure, but buyers do remain for this beleaguered aerospace giant.

Current Outlook

Transports ($TRAN, +0.24%) had been lagging the benchmark S&P 500 throughout much of this rally, but we're beginning to see this group pick up steam.  The TRAN has gained 10% over the past month and closed yesterday above 11,000 for the first time since early-October.  Higher crude oil prices ($WTIC) have provided headwinds for airlines ($DJUSAR) and trucking ($DJUSTK), but railroads ($DJUSRR) have certainly picked up the slack.  Currently, the TRAN shows solid price momentum and I'm looking for further gains ahead:

The RSI is approaching 70 so a pullback is definitely in order, but I expect that 10,700 would be the extent of any short-term selling.

Sector/Industry Watch

Defense stocks ($DJUSDN, +3.59%) got a huge lift from one of its leaders yesterday.  Lockheed Martin (LMT, +5.66%) blew away its EPS estimates ($5.99 vs $4.29) and helped pace a breakout in the defense group:

The 420-430 area provided price support in 2018 until the October breakdown and that level provided price resistance and a double top at 430 in November and February.  LMT provided the catalyst to break above this key level.  I'd be much more inclined to consider stocks in this area, especially LMT, which was a relative leader in this space heading into its earnings report.

Historical Tendencies

Since 1971, the NASDAQ has produced annualized returns of +12.83% during the month of May, which ranks as the 5th best month of the year.  You might want to think twice before considering the "go away in May" theory.  I'm not a believer in this theory and you shouldn't be either.  I've stated in the past that if you want to go away, do it in mid-July.  Until then, I expect we'll be full speed ahead.

Key Earnings Reports

(actual vs. estimate):

ANTM:  6.03 vs 5.86

APD:  1.92 vs 1.88

APH:  .89 vs .88

BA:  3.16 vs 3.11

BIIB:  6.98 vs 6.84

BSX:  .35 vs .36

CAT:  2.94 vs 2.84

DTE:  2.05 vs 1.95

GD:  2.56 vs 2.38

MCO:  2.07 vs 1.88

NOC:  5.06 vs 4.59

NSC:  2.51 vs 2.17

NVS:  1.20 vs 1.11

SAP:  1.02 vs .94

SIRI:  .03 vs .05

STM:  .20 vs .21

SWK:  1.42 vs 1.10

T:  .86 vs .85

TEL:  1.42 vs 1.27

TMO:  2.81 vs 2.74

(reports after close, estimate provided):

AGR:  .80

ALGN:  .83

AMP:  3.61

AVB:  2.28

CMG:  3.00

ESS:  3.19

FB:  1.66

LRCX:  3.38

MSFT:  1.00

NOW:  .54

ORLY:  4.06

PYPL:  .67

TSLA:  (1.21)

V:  1.24

WCN:  .60

XLNX:  .96

Key Economic Reports

None

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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