Trading Places with Tom Bowley

Consumer Discretionary Reasserting Leadership Role, Market Mixed

Market Recap for Thursday, April 27, 2017

Consumer discretionary (XLY, +0.53%) led the bifurcated action on Thursday as travel & tourism ($DJUSTT), gambling ($DJUSCA) and toys ($DJUSTY) all broke to fresh new highs helping to lead the sector higher.  The XLY has broken out and is leading once again on a relative basis vs. the benchmark S&P 500 so I'd consider looking at these three groups, in addition to other industry groups within the discretionary space.  However, of the three mentioned above, only toy has a strong historical track record in May as you can see below in the Historical Tendencies section.  XLY's recent relative strength is reflected in the Current Outlook section below.

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Medical Equipment Breaks Cup Resistance, Latest To Confirm Bullish Pattern

Market Recap for April 26, 2017

A late day selloff on Wednesday left the small cap Russell 2000 as the only major index left standing with gains.  The Dow Jones penetrated 21000 for a second consecutive session after not doing so for nearly two months.  The S&P 500 (SPY is the ETF that tracks the S&P 500) completed the right side of its cup before failing to make its breakout, leaving a long tail to the upside that reeks of a short-term top.  Here's the visual:

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Materials Break Out To Lead Another Market Surge

Market Recap for Tuesday, April 25, 2017

U.S. indices closed significantly higher for a second consecutive session, this time with materials (XLB, +1.61%) leading eight of the nine sectors higher.  Only utilities (XLU, -0.13%) failed to gain on the session.  We are seeing breakouts one at a time across our major indices, sectors and industry groups.  Many of the areas breaking out consolidated in bullish fashion for weeks or months prior to breaking out.  One such sector is the materials space where the XLB finally cleared resistance as you can see below:

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S&P 500 Breaks Downtrend, Financials Surge

Market Recap for Monday, April 24, 2017

Global markets rallied on the heels of French election results and U.S. markets were no exception.  We surged right out of the gate and didn't look back.  The NASDAQ flirted with the 6000 level before settling for an all-time high close of 5983.  The Russell 2000 nearly touched 1400 before it settled for a 1.31% gain, the best among our major indices.  Check out the Current Outlook section below for a fresh breakout on the relative price chart of the Russell 2000 vs. the S&P 500 ($RUT:$SPX).

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NASDAQ Poised To Set All-Time High After French Election

Market Recap for Friday, April 21, 2017

The S&P 500 trended lower from midday Thursday through Friday's close and that extended a much longer downtrend that began after the gap higher back on March 1st.  Futures are very bright green this morning, however, so we could finally see an end to the consolidation period that our major indices have been dealing with.  Below is a picture of what the S&P 500 has been battling for the past 7-8 weeks:

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Thursday's Rally Recipe Filled With Bullish Ingredients

Market Recap for Thursday, April 20, 2017

We've yet to see the breakouts in our major indices that we're looking for, but yesterday's rally was quite bullish with leadership coming from the small cap Russell 2000 ($RUT, +1.24%), financials (XLF, +1.69%) and industrials (XLI, +1.21%).  All three of those led the huge rally back in November and December - on an absolute and relative basis - so continuation of that earlier relative strength would bode well for U.S. equities.  Here's the visual:

Recently, one of the questions or concerns I've had is the relative weakness of each of these groups.  But relative consolidation occurs during bull markets.  I want to see relative strength resume in these areas on another bull market advance and, at least for one day, it resumed in a big way.  In particular, the Russell 2000's relative strength ($RUT:$SPX) ended yesterday at a six week high - a bullish development indeed.

The 10 year treasury yield ($TNX) appears to have at least stabilized after losing key short- to intermediate-term support near 2.30%.  Climbing back above 2.30% would provide a signal that traders are moving away from treasuries, a possible catalyst to drive equity prices higher. 

Pre-Market Action

Earnings this morning were very strong, including General Electric's (GE), which posted earnings well above consensus estimates (.21 vs .17).  For all of the key earnings this morning, check them out in the Key Earnings section below.

Technically, the French CAC ($CAC) is nearing both 2015 price resistance and its almost two decade downtrend line as it approaches its Presidential election.  There is some strength this morning in Germany as the DAX is up close to 0.50%.  Overnight, Tokyo's Nikkei ($NIKK) rose just over 1% with other key indices flat.

Dow Jones futures are looking to add to yesterday's gains, up 13 points with 30 minutes left to the opening bell.

Current Outlook

There are a few things to watch for in the next few trading days.  First, the NASDAQ open/close resistance is at 5923 while intraday resistance resides at 5936.  This index is laden with technology companies and has consolidated in bullish fashion the past few months as its daily MACD tested centerline support and its RSI touched 40.  Many times this is a launching spot for another big rally and thus far that's what we've seen.  A closing breakout above 5923, accompanied by further strength in aggressive sectors would resume our 8 year bull market.  Check out the current NASDAQ chart:

The uptrend from November into February is quite obvious, but the rally did run out of steam as you can see from the highlighted negative divergence.  The pink arrows mark the levels to look for, namely a MACD centerline reset and a 50 day SMA test.  This latest rally on the NASDAQ has been strong, coming off of RSI 40 and the bull market resumption would be confirmed with a heavy volume breakout.

Sector/Industry Watch

The Dow Jones U.S. Restaurants & Bars Index ($DJUSRU) has turned decidedly bullish in recent weeks.  Like many other industry groups, it was biding its time in a consolidation pattern, but it's recently broken out again and appears poised for further gains ahead.  Check out the chart:

Pullbacks to test the rising 20 day EMA (green arrows) would represent solid entry levels into your favorite restaurant stocks.  

Historical Tendencies

As we approach May, you might want to keep an eye on the Dow Jones U.S. Waste & Disposal Services Index ($DJUSPC).  It's the second best performing industry group in the month May over the last 18 years (trails only tobacco stocks).  Technically, the DJUSPC is on the verge of a bull flag breakout that could carry the group higher during one of its best seasonal periods of the year.  Here's the seasonality chart:

There's summer weakness ahead, however, so the next push higher could be the last before fall bullishness resumes.

Key Earnings Reports

(actual vs. estimate):

COL:  1.34 vs 1.31

GE:  .21 vs .17

HON:  1.66 vs 1.62

SLB:  .25 vs .25

STI:  .87 vs .84

SWK:  1.29 vs 1.19

Key Economic Reports

March existing home sales to be released at 10:00am EST:  5,605,000 (estimate)

Happy trading!

Tom

Rally In Semiconductors Looking Suspicious

Market Recap for Wednesday, April 19, 2017

The U.S. equity market enjoyed strong early gains on Wednesday only to see them mostly evaporate throughout the balance of the session.  The Dow Jones lagged badly all day as one of its components - IBM (-4.92%) - disappointed Wall Street with its latest quarterly results.  Weakness in energy (XLE, -1.47%) contributed to the Dow's poor performance as well with both Chevron (CVX) and Exxon Mobil (XOM) among the Dow's worst performers.  Energy showed some strength after printing a positive divergence, but after "resetting" its daily MACD to centerline resistance, weakness has resumed in energy in a big way.  Here's the chart:

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Industrial Suppliers Have Had A Rough Week

Market Recap for Tuesday, April 18, 2017

The Dow Jones U.S. Industrial Suppliers Index ($DJUSDS) tumbled more than 6% on Tuesday as the group absorbed its second earnings shock in the past week.  W.W. Grainger (GWW) came up short of its earnings expectations, then lowered guidance and traders punished the stock as GWW fell more than 11%.  This drop followed a negative divergence in February and a steady decline leading up to its earnings report.  Apparently, many folks were getting out ahead of the poor results.  GWW joined Fastenal (FAST) with disappointing results that have weighed heavily on the DJUSDS as you can see below:

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Financials And Transports Lead U.S. Rally

Market Recap for Monday, April 17, 2017

If you're in the bullish camp, you have to be breathing a sigh of relief following yesterday's action.  It was only one day, but after the bulls' grip on the market really seemed to be slipping at the end of last week, we saw all four of the aggressive areas of the market perform well on Monday, leading a very nice rally that included banks ($DJUSBK) recapturing neckline support.  They're certainly not out of harm's way, but moving back above 390 quickly is a start.  Climbing back above the declining 20 day EMA, currently near 403, is job one so the range between Thursday's low at 387 and 403 is what we need to focus on short-term.  Here's the visual look:

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10 Year Treasury Breaks Down, Signals Potential Economic Weakness Ahead

Market Recap for Thursday, April 13, 2017

The big news on Thursday - at least technically - was the breakdown in the 10 year treasury yield ($TNX) to its lowest close since early November.  Most traders have been expecting continuing economic strength based on wisdom from the Federal Reserve.  However, price action is beginning to tell a different story as money moves into defensive areas, including treasuries.  The move to treasuries is definitely spooking banks, which failed to hold onto neckline support on Thursday's close as you can see below:

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