Trading Places with Tom Bowley

Bifurcated Action Draws Sellers In Leading Industries

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Market Recap for Monday, September 9, 2019

Monday's action was odd, mixed and bifurcated. The small cap Russell 2000 ($RUT) had a very strong day, rising 1.27%, while the NASDAQ, another aggressive index, fell 0.19%. The Dow Jones finished with a slight gain, but the S&P 500 lost a fraction of a point. Energy (XLE, +2.00%) and financials (XLF, +1.53%), two sectors that have lagged quite a bit in 2019, led the action on Monday, while 2019 leaders, real estate (XLRE, -0.75%) and technology (XLK, -0.75%), were two of the primary laggards. Healthcare (XLV, -0.92%) was the worst performing sector as medical equipment stocks ($DJUSAM, -2.31%) struggled after recently making a breakout above its late-July high:

Nearly every leading industry group in 2019 took it on the chin yesterday, despite our major indices ending mostly in positive or flat territory. Renewable energy ($DWCREE, -1.07%), easily the best performing industry group in 2019, fell despite a strong energy group. The DWCREE is consolidating in a bullish symmetrical triangle and is illustrated in the Sector/Industry Watch section below.

Software ($DJUSSW, -1.23%), financial administration ($DJUSFA, -2.63%), personal products ($DJUSCM, -1.89%), restaurants & bars ($DJUSRU, -1.02%), specialty finance ($DJUSSP, -1.92%), business support services ($DJUSIV, -2.49%), and defense ($DJUSDN, -1.99%) all took big hits on what appeared to be a ho-hum kinda day on the surface. It seemed like traders were content to sell recent winners and rotate into areas that have really been underperformers, looking for a bounce in those areas. That strategy certainly paid off on Monday.

Pre-Market Action

Crude oil ($WTIC) is up another 1% in early action this morning, adding to Monday's 2.35% advance. The 10 year treasury yield ($TNX) is up another 3 basis points to 1.65%, which should aid equities in general, but especially financials (XLF). Gold ($GOLD) is down $12 per ounce to $1499. A close below $1500 would be GOLD's first in a month.

Stocks were mixed overnight in Asia and they're trading in similar fashion this morning in Europe. U.S. equities are showing weakness in pre-market action with Dow Jones futures currently lower by 35 points as we approach the opening bell.

Current Outlook

One really big positive for U.S. equities has been the performance of transports ($TRAN) since the reversing bullish engulfing candlestick formed two weeks ago:

Since testing that early-June low, the TRAN has bounced roughly 8% and has its eyes set on the downtrend line that spans the past year. A definitive break above 10800 would be extremely bullish for U.S. equities, in my view, especially if accompanied by a continuing rise in the 10 year treasury yield ($TNX).

Sector/Industry Watch

Renewable energy ($DWCREE) has been incredibly strong in 2019, but yesterday's action further squeezed the group in its current symmetrical triangle:

The uptrend is rather obvious, so I look for continuation patterns when we go through a period of selling and/or consolidation. If triangle support fails to hold in the 123-124 area, then I'd look next to recent price support just beneath 120 and perhaps the development of a bullish wedge or rectangular consolidation.

Historical Tendencies

The following is a breakdown of the NASDAQ's annualized returns (since 1971) during the month of September:

Sept 1-19: +11.49%

Sept 20-26: -48.84%

Sept 27-30: -14.15%

It's very similar to what I posted yesterday on the S&P 500. That Sept 20-26 period is the one we really need to be aware of. It doesn't go down every year, but there's clearly a tendency for the period to be weak.

Key Earnings Reports

(actual vs. estimate):

HDS: 1.08 vs 1.08

(reports after close, estimate provided):

PLAY: .86

RH: 2.70

ZS: .01

Key Economic Reports

None

Happy trading!

Tom

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Tom Bowley
About the author: co-founded Invested Central in 2004 and served as the site's Chief Market Strategist for more than 10 years. Invested Central provides stock market education and guidance for those interested in making their own financial decisions. During his tenure at Invested Central, Tom co-hosted Market Open LIVE, a national radio broadcast that covered many of the largest markets across the U.S. In addition, he has spoken at various conferences throughout the United States and Canada and has taught thousands of traders across the globe how to trade equities more wisely with an emphasis on managing risk and intermarket relationships. Learn More
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