Monday, August 31, 2015
Market Recap for Friday, August 28, 2015
Global markets were mixed on Friday, although most of the action here in the U.S. was positive, albeit on lighter Friday volume. Commodities were particularly strong, especially crude oil ($WTIC) and gold ($GOLD), but both have been long-term underperformers as evidenced by the chart below:
We saw commodities perform quite well at the end of last week, but they've got a LONG ways to go to be healthy and I'd view the advance at this point as nothing more than an oversold bounce.
The good news is that the rally last week in equities began prior to the loss of major intermediate-term price support set in October 2014. You can see from the SPY (ETF tracking the S&P 500) chart that prices rallied just before the key support at 180.37 was tested. The bad news is that we've now seen breakdowns on both the daily and weekly charts as follows:
The combination of daily and weekly breakdowns certainly has me much more cautious while recognizing that we haven't yet broken the intermediate- to long-term series of higher highs and higher lows. To be honest, we're in what I'd refer to as a potential transition period - or no man's land as a trader. Short-term the market is broken, but with the Volatility Index ($VIX) so high, it's difficult to trade effectively because of the whipsaw action in BOTH directions. Please keep in mind that while highly volatile markets provide an opportunity to produce higher returns near-term, that higher potential return comes with an inordinate amount of increased risk.
Pre-Market Action
Futures are weak as the U.S. stock market sets to open much lower this morning, due in part to weak overnight action in Asia. Also, a prominent Fed official reiterated that a September rate hike is not off the table. Throw in profit taking after last week's rally and you have this morning's market environment. Traders are likely to be cautious for technical reasons as well, many of which are reflected in this report.
U.S. corporate news is quite slow, typical for late August although JC Penney (JCP) did receive an upgrade to a BUY this morning from Deutsche Bank. Chicago PMI will be released within an hour at 9:45am EST and that will likely be scrutinized given the September Fed meeting upcoming.
Current Outlook
Volume trends have turned decidedly negative in the near-term on our major indices. Bull markets don't just roll over into bear markets overnight. It's a process and we may still be in the 6+ year bull market, but how we react from key 20 day EMA tests will send us a signal. The VIX remains above the 20 level and we haven't been able to sustain the bullish action long enough to clear technical hurdles. Remain on high alert for additional wild swings as we close out August and welcome September. The VIX represents "expected volatility" and high volatility readings are nearly always associated with market weakness and that was definitely the case with the recent spike in the VIX.
Keep in mind that the lows from last Monday occurred on very heavy volume and should now act as solid price support, especially along with the price lows established in October 2014. Failure to hold onto those support levels would add to the likelihood of much lower prices later in 2015 and 2016. Holding those lows and consolidating would actually be bullish from a longer-term perspective. Hence, the reason to be cautious.
Sector/Industry Watch
Energy bounced off oversold conditions last week and we saw some strength in technology and consumer discretionary, but financials and healthcare did not rebound nearly as strongly. Biotechs ($DJUSBT) printed a 50 week SMA test for the first time in 16 months and it came off a series of negative divergences that I had written about a few months ago. Slowing momentum on the longer-term weekly charts are no longer an issue after last week's hammer. Check it out:
Historical Tendencies
September is the worst calendar month of the year in terms of S&P 500 performance since 1950. We don't typically see much strength throughout September, but the best week is usually the first one. While September clearly is the most bearish throughout the year, there are pockets of historical industry strength that includes the internet space ($DJUSNS) and footwear ($DJUSFT). Using the seasonality tool, we can look back to see that both internet stocks and footwear not only perform well in September historically, but they also perform quite well from now through December 31st. Check out these two seasonality charts.
DJUSNS:
DJUSFT:
At the bottom of the gray bars of each calendar month, you'll see a number. That represents the average return FOR THAT MONTH ALONE over the number of years reflected on the slider. I'll spend time at noon today in my Trading Places LIVE webinar explaining these two charts in more detail and looking for stocks within these two industry groups that could benefit from historical tailwinds.
Key Economic Reports Today
- Chicago PMI at 9:45am EST. 54.9 estimate.
Key Earnings Reports Today
None.
Please join me for my webinar at noon EST today. You can register for FREE, simply CLICK HERE. Also be sure to subscribe to my blog to receive this morning report each and every day as soon as it's published. You can subscribe at the upper right hand side of my blog by clicking on "Email updates", typing in your email address and hitting "Subscribe".
Have a great week and happy trading!
Tom
Disclosures
Beginning today, I will be writing a morning blog article here at Trading Places LIVE every day the stock market is open to recap the prior day's action and to provide some thoughts and a few charts to consider as we approach the new trading day. I am a trader focused mostly on near-term trading opportunities and strategies where my holding periods rarely exceed a couple months. In some cases, I may hold for only 1-2 days. In addition, starting today I will begin hosting three 1 hour webinars to be held on Mondays, Wednesdays and Fridays at noon EST. This blog and my webinars will be devoted primarily to short-term trading strategies, with a heavy slant towards education. I am NOT a registered investment advisor (RIA) and do not recommend any securities to anyone for purchase. Please check with your own personal financial advisor before considering the purchase of any securities mentioned in my blog or webinars.
