Market Recap for Wednesday, July 26, 2017
The small cap Russell 2000 index struggled, finishing down 0.56% on Wednesday's session, but it was another day of record high closes elsewhere as the Dow Jones, S&P 500 and NASDAQ all advanced. The FOMC provided its latest policy statement at 2pm EST yesterday, but after some brief weakness, our major indices recovered and the move to new highs was underway.
The 10 year treasury yield ($TNX) saw a notable drop, falling from 2.34% an hour before the announcement to 2.28% an hour after. The Fed voted unanimously to leave interest rates unchanged and there was language that the unwinding of its balance sheet would begin "relatively soon", which many analysts interpreted as September possibly. The Fed has been quite transparent in making investors aware of its plans so the thought is that the eventual unwinding will not be disruptive to the bond market. I'm scratching my head on this one. The Fed announced its bond purchases several years ago, yet it was quite disruptive as interest rates fell to unprecedented levels. I see the upcoming unwinding as very hawkish, leading to higher interest rates, which will only help areas like banks ($DJUSBK) and life insurance companies ($DJUSIL), while being detrimental to utilities.
For Wednesday, however, the lower TNX translated into a solid day for the utilities (XLU, +0.95%) as that defensive group led the market action. As expected, financials (XLF, -0.67%) struggled with the lower TNX as bank stocks gave bank some of their nice Tuesday profits.
The XLU is now in a clear trading range as reflected below:
The lows from March through May should provide solid support during the market's bull market run and the recent double top just above 54.00 will remain key price resistance.
Pre-Market Action
The 10 year treasury yield ($TNX) is up, gold (GOLD) is up and oil ($WTIC) is down as the day after the Fed unfolds. Dow Jones futures are currently higher by 30 points, but the real strength is in the NASDAQ where we're looking at a much higher open after solid reports by several large cap NASDAQ names like Facebook (FB), Celgene (CELG), Alexion Pharmaceuticals (ALXN) and others.
U.S. strength follows another rally in Asia overnight. However, European markets are lower with the German DAX ($DAX) down 0.61% at last check.
Current Outlook
Despite the relative weakness on Tuesday, the Russell 2000 remains in a solid uptrend on its 60 minute chart and is poised to regain its strength:
The 1430-1435 area is solid support on both the 60 minute and daily charts so if you're looking for more aggressive selling, that's the support level that needs to be cleared to the downside. Otherwise, expect this bull market advance to live on.
Sector/Industry Watch
Transportation services ($DJUSTS) is approaching a major price resistance level and its behavior of late appears to be quite bullish. I'd expect a breakout sooner rather than later:
The solid bounces off rising 20 day EMA support and the heavy volume that has accompanied the uptrend off the mid-May low are very bullish developments so I would expect to see a breakout in this group sooner rather than later.
Ryder (R) is one of the components of the DJUSTS and has been performing well as illustrated below:
The two green arrows mark key support at the rising 20 day EMA - a bullish development during an uptrend. Also, the blue arrow above the volume shows that volume has been increasing during the latest bounce. Overhead price resistance is just below 79.00, then again near 83.50. I'd look for those two levels to be tested soon.
Historical Tendencies
Alexion Pharmaceuticals (ALXN) has a history of performing well during the summer months and its strong 2nd quarter earnings report this morning won't hurt in 2017. ALXN blew away its estimates on both revenues and EPS and is trading higher by 6% in pre-market trading. That solid earnings report will likely be aided by historical tailwinds as you can see below:
The second half of the year has clearly been stronger than the first half as evidenced by the yellow highlights above. Not many stocks have yielded the type of July through September performance that ALXN has over the past 20 years. That strength continues right into the early part of the next year as well. ALXN is a biotech ($DJUSBT) so it can be quite volatile, but the DJUSBT looks very strong technically right now so I expect ALXN to continue to perform well, with pullbacks to its rising 20 day EMA representing opportunities for entry.
Key Earnings Reports
(actual vs. estimate):
ABEV: .04 vs .04
ADP: .65 vs .67
ALXN: 1.31 vs 1.08
AMT: 1.68 vs 1.55
AZN: .87 vs .41
BMY: .74 vs .73
BSX: .32 vs .31
BUD: .95 vs 1.14
CAJ: .57 vs .56
CELG: 1.68 vs 1.61
CHTR: .52 vs .81
CMCSA: .52 vs .48
COP: .14 vs. (.02)
DOW: 1.08 vs 1.01
JCI: .71 vs .71
LUV: 1.24 vs 1.20
MA: 1.10 vs 1.04
MCK: 2.46 vs 2.81
MMC: 1.00 vs 1.00
MO: .85 vs .86
NOK: .09 vs .04
PG: .85 vs .78
PX: 1.46 vs 1.43
RDS.A: .88 vs .75
RTN: 1.98 vs 1.74
SIRI: .04 vs .04
STO: .40 vs .38
TOT: .97 vs .98
UPS: 1.58 vs 1.46
VLO: 1.23 vs 1.08
VZ: .96 vs .96
(reports after close, estimate provided):
AMZN: 1.40
EA: .14
INTC: .68
SBUX: .55
SYK: 1.51
Key Economic Reports
June durable goods released at 8:30am EST: +6.5% (actual) vs. +3.5% (estimate)
June durable goods ex-transports released at 8:30am EST: +0.2% (actual) vs. +0.4% (estimate)
Initial jobless claims released at 8:30am EST: 244,000 (actual) vs. 240,000 (estimate)
Happy trading!
Tom
