Market Recap for Friday, November 25, 2016
It was a shortened trading session on Friday, but that didn't stop the bulls. Our major indices all gapped higher and finished there as well. There was little volatility during the day as the S&P 500 spent most of the session within two points. Speaking of volatility, the Volatility Index ($VIX) ended at 12.34, which was its lowest close since September 23rd. A constantly declining VIX, day after day, is a hallmark of a continuing bull market.
Last week I had posted that Black Friday has produced very bullish historical results with the S&P 500 rising 48 of the last 66 Black Fridays. Add this past Friday to the list of winners as all of our major indices rose between 0.30%-0.40%. The gains weren't huge, but simply added on to the string of recent gains.
Eight of nine sectors ended the day higher with energy (XLE, -0.49%) the lone sector in negative territory. Utilities (XLU, +1.44%) and consumer staples (XLP, +0.79%) were the two sectors leading the climb. Unfortunately, the XLU's strength simply allowed it to test its declining 20 day EMA. Given the weak momentum, I'd look for leadership from this group to be very short-lived. Check it out:
Should the XLU manage to climb above the declining 20 day EMA, there'll be more resistance another 2% higher when the upper downtrend line is tested.
Pre-Market Action
U.S. futures are down slightly this morning as crude oil ($WTIC) was under pressure earlier. It has since recovered, however, and is currently trading higher. Unfortunately, action in Europe is lower and key indices there have not recovered. I'm still awaiting a breakout on the German DAX above 10800 to confirm the S&P 500's rally.
Dow Jones futures are lower by 52 points 30 minutes from today's open.
Current Outlook
The 10 year treasury yield ($TNX) has been soaring over the past two months and the selling of treasuries is responsible for the rise. Proceeds from that selling have been making their way into the equity market and is one catalyst for the current bull market advance. The bad news for equity bulls is that they may need a different catalyst as we approach December because there will be short-term yield resistance overhead. Take a look:
The good news is that the intermediate-term downtrend in the TNX was broken and we now appear to be uptrending in the intermediate-term. The bad news is that we could see a stifling of the yield short-term as the TNX tests the 2.40%-2.50% level. I'd expect any drop in the TNX to hold support from 2.00%-2.10%.
Sector/Industry Watch
Industrial stocks (XLI, +0.55%) have been very strong performers during this latest stock market rally, but the Dow Jones U.S. Waste & Disposal Services Index ($DJUSPC) may relinquish its Friday leadership role as the industry group tests overhead price resistance. Check this out:
The red arrows show multiple tests of price resistance while the green arrows highlight price support holding. There's a bit more room to the upside on this chart, but you may see sellers lined up at 220. The chart is bullish, but I'd still respect the price resistance until it's cleared.
Monday Setups
This is an area where I provide current or past setups to help demonstrate the keys to managing risk while trading. Successful trading doesn't mean getting every trade right. It really boils down to managing risk, which means exercising a ton of patience and discipline. XPO Logistics (XPO) was a stock that was featured in August, highlighting the top of gap support. Check it out:
You can see the huge earnings-related gap higher in early August. Note the low of 32 the day of the gap. That served as excellent support and a risk-managed entry point on two future occasions (green arrows) in September and again earlier this month.
I'll be discussing other setups in my Trading Places LIVE webinar, which you can REGISTER FOR HERE. You do need to be a StockCharts.com member, however, so take advantage of today's Cyber Monday special.
Historical Tendencies
December is a bullish month for U.S. equities with the S&P 500 rising 49 of the last 66 years during the month. That means that December has risen 74% of the time since 1950 - the highest percentage of any calendar month. Its annualized return of 19.48% is also the highest of any calendar month with November's 17.48% a fairly close second.
Key Earnings Reports
(reports after close, estimate provided):
THO: 1.23
Key Economic Reports
None
Happy trading!
Tom
