Market Recap for April 26, 2017
A late day selloff on Wednesday left the small cap Russell 2000 as the only major index left standing with gains. The Dow Jones penetrated 21000 for a second consecutive session after not doing so for nearly two months. The S&P 500 (SPY is the ETF that tracks the S&P 500) completed the right side of its cup before failing to make its breakout, leaving a long tail to the upside that reeks of a short-term top. Here's the visual:
The failure technically could set up the S&P 500 for short-term sideways to down action in the very near-term. Just keep in mind that would set up a handle in a very bullish continuation pattern - the cup with handle. I fully expect we'll see a breakout in this index within the next 1-2 weeks.
Healthcare (XLV, +0.55%) and consumer discretionary (XLY, +0.47%) were the two sectors that finished in positive territory. Medical equipment ($DJUSAM) stocks were very strong and have broken out of a longer-term cup with handle that is featured below in the Sector/Industry Watch section. Weakness was felt in consumer staples (XLP, -0.81%) as there was a clear distinction in which group of consumer stocks that traders were interested in.
Pre-Market Action
The 10 year treasury yield ($TNX) is flat this morning, but it did manage to climb back above 2.30%. If you recall, 2.30% had held as support for months before the TNX lost that support a couple weeks back. It's important to see the TNX rise as it signals the selling of treasuries, whose proceeds can then be used to fuel the next rally in stocks.
Selling pressure remains in crude oil ($WTIC) where black gold has tumbled 1.8% this morning to $48.72 per barrel.
Asia was mixed overnight while Europe is fractionally lower this morning. Recent gains in the U.S. appear to be holding despite selling in the final hour yesterday. Currently, Dow Jones futures are higher by 36 points as we approach today's open, a little more than 30 minutes away.
Today is a HUGE day for earnings, especially for the tech-laden NASDAQ. The list of companies reporting quarterly results tonight after the bell include AMZN, GOOGL, INTC, MSFT and SBUX. For earnings estimates, check out the Key Earnings Reports section below.
Current Outlook
Consumer discretionary has been performing very well relative to the S&P 500. It had been a couple years since the XLY:$SPX ratio showed bullishness but that appears to be changing and that's a bullish development for U.S. equities. There was a bullish relative wedge in play that recently broke to the upside so I'm looking for the XLY to continue leadership during the next bull market rally. Take a look:
The XLY is one of the four aggressive sector ETFs and it's always bullish to see leadership coming from discretionary stocks.
Sector/Industry Watch
Medical equipment stocks ($DJUSAM) broke out of a very bullish longer-term continuation pattern this week
as you can see below:
The measurement on a cup with handle pattern is from the top of the cup to the bottom. In the case of the DJUSAM, I'd use a target now of roughly 1350, so there's a lot of room for appreciation in 2017.
Historical Tendencies
We're approaching a very bullish period on the S&P 500 from April 29th to May 6th. The annualized return for this period on the S&P 500 since 1950 is +31.31%.
Key Earnings Reports
(actual vs. estimate):
ABBV: 1.28 vs 1.26
AMT: 1.58 vs 1.51
BMY: .84 vs .72
CELG: 1.53 vs 1.47
CMCSA: .53 vs .44
CME: 1.22 vs 1.20
DOW: 1.04 vs .99
F: .39 vs .34
RTN: 1.73 vs 1.61
UPS: 1.32 vs 1.30
(reports after close, estimate provided):
AMZN: 1.02
BIDU: .63
GOOGL: 7.24
INTC: .65
MSFT: .69
SBUX: .45
Key Economic Reports
March durable goods released at 8:30am EST: +0.7% (actual) vs. +1.1% (estimate)
March durable goods ex-transports released at 8:30am EST: -0.2% (actual) vs. +0.4% (estimate)
Initial jobless claims released at 8:30am EST: 257,000 (actual) vs. 244,000 (estimate)
March pending home sales to be released at 10:00am EST: -0.5% (estimate)
Happy trading!
