Market Recap for Friday, April 7, 2017
Consumer staples (XLP, +0.27%) and healthcare (XLV, +0.18%) were the sector leaders on Friday as our major indices finished near the flat line. Money rotated a bit towards defensive stocks, although utilities (XLU, -0.43%) failed to follow its defensive counterparts higher. Among industry groups, the Dow Jones U.S. Defense Index ($DJUSDN) saw buying after the Thursday Syrian missile attacks, bouncing off a key price support level. Take a look:
Prior to Friday's strength, the DJUSDN had unwound overbought conditions with the RSI falling back to 40 support (black horizontal line). Also, there was a negative divergence that formed with its most recent price high. That was resolved with the MACD reset and 50 day SMA test (pink arrows). Defense remains one of the better looking industry charts.
Pre-Market Action
Crude oil ($WTIC) continues to trend higher, rising more than 1% this morning and approaching $53 per barrel. That should help lift the energy sector (XLE) today. In the meantime, a stronger dollar ($USD) is keeping the clamps on gold ($GOLD), which is down 7 dollars this morning to $1250.
The 10 year treasury yield ($TNX), which bears very close watching, is flat this morning at 2.37% after a huge recovery and reversal on Friday.
Dow Jones futures are up slightly as we prepare for a fresh new trading week that begins in 30 minutes.
Current Outlook
The 10 year treasury yield ($TNX) was on the verge of a very significant breakdown on Friday with its intraday low of 2.27% in the morning. Fortunately for the bulls - especially bank ($DJUSBK) bulls - there was a key reversal with the TNX finishing well above its 2.30% closing yield support. This type of reversal typically signals at least a short-term bottom. I'd grow very concerned with even an intraday move below 2.27% now. Here's what the technical picture looks like after the recovery:
From here, I'd be very surprised if we didn't begin an uptrend. That tail wind, along with the anticipation of strong earnings reports, could be the catalyst for another big push higher in banks ($DJUSBK) and life insurance companies ($DJUSIL).
Sector/Industry Watch
Biotechs ($DJUSBT) are seeing a squeezing of price action between a bullish rising 20 week EMA and bearish overhead price resistance near the 1800 level. Its year long downtrend broke in the second half of 2016 and after a retest at price support, we've seen a nice uptrend develop as follows:
The uptrend nearly intersects the rising 20 week EMA. The current trading range is from 1720-1800. Based on the above, I'm expecting see the resistance give way and biotechs begin to move toward the 2015 high.
Monday Setups
Applied Industrial Technologies (AIT) has been consolidating for a couple months after posting very solid earnings in late January. I would not be surprised to see a pre-earnings run up in AIT price as its next quarterly earnings report approaches. Here's a current look at the chart:
There's no momentum currently in AIT, evidenced by the month long MACD hovering near its centerline. I think we'll see that change as the next earnings report nears. Given the bullish flag pattern, the most likely move will be higher - in my opinion.
Historical Tendencies
Since 1950, Mondays have been the worst performing day of the calendar week by far on the S&P 500, producing annualized returns of -15%.
Key Earnings Reports
None
Key Economic Reports
None
Happy trading!
Tom
