Due to the Thanksgiving holiday, my article will be abbreviated today. I hope everyone is able to enjoy the long weekend with family and friends. I'll be back on Monday with my regular Trading Places blog article.
Market Recap for Wednesday, November 23, 2016
It was another record setting day on Wall Street. The Russell 2000 was once again the leader, gaining 0.58% while the Dow Jones and S&P 500 tacked on 0.31% and 0.08%, respectively. The NASDAQ rallied late in the day, but still fell just short of the flat line and lost 5 points on the session. The theme of late continued as industrials (XLI, +0.74%), financials (XLF, +0.58%), materials (XLB, +0.45%) and energy (XLE, +0.41%) led the rally. Perhaps the most surprising on this list would be materials since the U.S. dollar ($USD) surged again on Wednesday, closing at a near 14 year high. The pattern on the USD is similar to the late-1990s and is now suggesting to me that we could see another 15% rally on top of what we've already seen. Check out this 25 year weekly chart:
The parabolic rise in the dollar beginning in 2014 rose from 80 to 100 before we saw bull flag consolidation for more than a year. With the latest breakout I see potential measurement near 120, which is where resistance from the early 2000s resides.
The dollar strength is killing gold (GLD) and we've seen a major breakdown in the GLD as you can see below:
Despite this weakness in gold, materials have broken out to their own 52 week high and are close to breaking out to an all-time high. Gold and silver (SLV) are holding back this sector.
Another sign of global economic strength has been the surge in copper ($COPPER) over the past month. After spending all of 2016 in the 1.90-2.30 range, copper has exploded to 2.60 and appears to be on track to test the 2.90 area as reflected below:
Momentum is as strong as at any time over the past couple years as evidenced by the bullish MACD crossover and heavy volume to support the advance.
Defensive sectors lagged on Wednesday as utilities (XLU, -1.00%) and consumer staples (XLP, -0.55%) were two of three sectors to finish in negative territory. The other was technology (XLK, -0.40%), dragged lower by software, internet and computer hardware. Internet ($DJUSNS) is worth watching because it's now in a battle with resistance clearly at the declining 20 day EMA while support is 1100. Check out the latest here:
Internet stocks historically perform well during the balance of the calendar year so look for 1100 support to hold if we test that level again. In the meantime, a break above the 20 day EMA on a closing basis would be bullish.
Happy trading!
Tom
