Market Recap for Wednesday, November 4, 2015
Wednesday represented a day of consolidation as only two sectors were able to close higher - utilities and technology - and the latter was barely higher. The other 7 sectors finished down in a session of profit taking. While utilities (XLU) rose, they are at a key level of resistance within a down channel at a time when the Fed continues to threaten a rate increase. The 10 year treasury yield ($TNX) has been rising, indicative of the fact that bond traders believe the Fed is moving closer to raising rates for the first time in nearly a decade. A move to raise rates would likely send utilities lower and the current technical conditions suggest the same. Take a look:
The TNX began rising in early February and you can see that utilities began declining at roughly the same time. So if you're interested in owning utility stocks, you really are betting on the Fed stalling on its rate raising program into 2016 to allow the XLU to break out of its recent down channel. I don't believe it will happen, but time will tell.
Internet stocks ($DJUSNS) led the technology sector to gains on Wednesday. We've seen solid earnings reports out of several big internet names and Facebook (FB) joined that list after the closing bell on Wednesday. FB's strong results and pre-market strength will only add to the DJUSNS, which has risen 19.84% since its close on September 29th. Heading into October, I identified DJUSNS as the BEST performing industry group during the month of October historically and they've certainly done nothing to change that status.
Pre-Market Action
The FB earnings blowout has traders scrambling once again for internet and other technology-related names. A strong day today on the S&P 500 could set this benchmark index up for a test of its all-time high of 2131 just as a key employment report is released on Friday morning. That's somewhat astounding when we consider where we were just a couple months ago. But that's what bull markets are made of - rotation and resiliency.
Asian markets finished mostly higher while European indices are also strong. Both the France CAC and German DAX were up roughly 1% at last check. Global strength in equities should continue to provide tailwinds for the U.S. market as traders await a key jobs report on Friday.
Current Outlook
The U.S. stock market is not only being buoyed by action here at home, but we're also benefiting from improving technical conditions globally. Last night, the China Shanghai Composite ($SSEC) closed back above 3500 for the first time since the August decline. While last night's action is not included on this chart, the SSEC rose 63 points, or 1.83%, to finish at 3523. Check out the recent strength:
The red dotted line represents gap resistance from the big selloff in August. While it appears we haven't cleared it, keep in mind that last night's action is not reflected above. The 63 point advance easily surpassed this resistance level and the recent price strength has resulted in a bullish MACD centerline crossover and a golden cross with the 20 day EMA rising above the 50 day SMA. The rising 20 day EMA has been holding as support recently, a bullish development as well.
While the S&P 500 does not positively correlate with the Shanghai Composite, it does correlate strongly with the German DAX ($DAX). The DAX remains in a bullish uptrend, very similar to the S&P 500, as reflected below:
From this chart, you likely understand why I follow the action in Germany so closely. These two indices are the most positively correlated in my opinion. Both remain in solid bull market channels with October 2014 lows remaining critical to their continuing advance. Currently, I remain bullish both.
Sector/Industry Watch
I reviewed the "Sector Summary" on the home page of stockcharts.com and looked at performance over the past week to identify industry groups within our aggressive sectors that had not participated in the recent advance. I then reviewed their charts to identify groups that have pulled back recently and could be poised to surge. A favorite here is the Dow Jones U.S. Restaurants & Bars index ($DJUSRU). While it has lagged this past week, it remains in a bullish uptrend and recently broke out to all-time highs. Check it out:
The primary positive is that we've seen weakness to challenge an area of short-term support. There's a confluence of support with the recent uptrend line, short-term price support and the rising 20 day EMA all suggesting that the 1175-1185 area is solid entry for the bulls. Panera Bread (PNRA) and Chipotle Mexican Grill (CMG) are both strong long-term performers that have sold off to key short-term support. Just be careful if they lose the price support established earlier in 2015. Starbucks (SBUX) has been a great performer and the group's recent selling has seen SBUX drop to test its rising 20 day EMA, a solid short-term entry.
Historical Tendencies
As a reminder, our major indices typically perform very well through the close on November 6th. The NASDAQ's annualized return for November 5th and 6th is 101.13% and 17.78%, respectively.
Key Earnings Reports
(actual vs estimate):
APA: (.05) vs (.38)
AZN: 1.03 vs .51
CELG: 1.12 vs 1.09
DUK: 1.47 vs 1.52
GOLD: .45 vs .48
LAMR: 1.27 vs 1.16
RGLD: .17 vs .28
RL: 1.86 vs 1.73
TAP: 1.40 vs 1.28
(reports after today's closing bell, estimate provided):
AL: .70
CBI: 1.54
CYBR: .10
DATA: (.13)
DIS: 1.17
MNST: .81
MTD: 3.18
NVDA: .25
SHAK: .07
STMP: .72
SWKS: 1.39
TRIP: .47
Key Economic Reports
Initial jobless claims released at 8:30am EST: 276,000 (actual) vs. 262,000 (estimate)
Q3 productivity released at 8:30am EST: +1.6% (actual) vs. +0.1% (estimate)
Happy trading!
Tom
