Market Recap for Wednesday, August 2, 2017
The action on Wednesday was quite boring once again, despite hundreds of companies reporting their quarterly results. The Dow Jones jumped another 52 points to a fresh record high - which it's been seeing daily - and it pierced 22000 for the first time in its history, touching 22036 at its intraday high before settling in at 22016 at the close. The benchmark S&P 500 rose another point to 2477, but one of its biggest technical issues - a weekly negative divergence - hasn't seen any improvement:
Negative divergences are a sign of slowing price momentum. Volume has been weak on its recent push higher as well, seemingly confirming the slowing price momentum. I typically see subsequent 50 period SMA/weekly MACD centerline tests (pink arrows) to alleviate these momentum issues. That suggests that short-term summertime weakness could result in a 5-6% drop. We'll see.
Apple (AAPL) posted excellent earnings results with its EPS of 1.67 topping 1.57 estimates. It also beat revenue estimates and management raised guidance for the upcoming Q3. This led to a broad market advance at the open, but traders used that as another opportunity to sell equities. A late day rally did offset much of the earlier losses and the NASDAQ 100 was able to post decent gains into the close.
Pre-Market Action
The 10 year treasury yield ($TNX) is just beneath 2.25% this morning as traders move towards the defensive bond market. Oil ($WTIC) has moved higher to again approach the psychological $50 per barrel level. Energy (XLE) has been unable to use the recent strength in oil to break above its key price resistance near 67. Asian markets took a breather overnight and European markets are mixed this morning.
Dow Jones futures are set to open flat.
Current Outlook
While negative divergences abound, leading me to believe the next couple months could be rocky - and perhaps downright bearish - there's one very solid signal supporting this market. Consumer discretionary stocks (XLY) continue to perform quite well vs. their staples counterparts (XLP). This ratio (XLY:XLP) is very close to a significant breakout:
If our economy were about to slow, this ratio would likely be dropping as stock market participants look several months into the future when pricing stocks. This has proven to be one of the best S&P 500 forecasting relationships and it's still pointing to economic strength ahead.
Sector/Industry Watch
Specialty finance ($DJUSSP) has had a rough week and a half, but now finds itself at a very friendly place - its rising 20 day EMA. This financial industry group was sporting a very overbought RSI reading near 80 at its peak, but the recent selling has cooled it off back to 55, and is now a much better reward to risk entry:
If we do see a temporary break of 20 day EMA support, I'd look for price support closer to 177 to initiate more buying pressure. Moody's (MCO) has been a very strong stock within this space and currently sports a very nice 84 SCTR. Gap support near 127.50 would be excellent entry into MCO with a tight closing stop just beneath. 135 would be a solid short-term target.
Historical Tendencies
J.B. Hunt Transports (JBHT) has been a relatively solid performer amongst its trucking peers, but this trucker faces a major seasonal uphill battle. August has gotten off to a rotten start and, unfortunately, that's been the norm for JBHT for the past couple decades. Check out the rough summer seasonal pattern below:
The fourth quarter is stellar for JBHT, but there's typically rough pavement, a detour and the threat of overheating during August and September. Those August results have been brutal. I don't think I'd trust JBHT with my financial load - at least not for the next several weeks.
Key Earnings Reports
(actual vs. estimate):
ABC: 1.43 vs 1.37
ADDYY: .94 vs .88
AET: 3.42 vs 2.34
AGN: 4.02 vs 3.95
BDX: 2.46 vs 2.44
CLX: 1.53 vs 1.49
CNQ: .28 vs .17
CTSH: .87 vs .82
DISH: .69 vs .75
DUK: 1.01 vs 1.01
ENB: .41 vs .35
EPD: .30 vs .33
GPN: .89 vs .87
ICE: .75 vs .75
K: .97 vs .92
PH: 2.45 vs 2.31
PPL: .52 vs .50
REGN: 3.88 vs 2.67
SHPG: 3.73 vs 3.52
YUM: .68 vs .61
(reports after close, estimate provided):
ATVI: .25
ED: .61
KHC: .96
MCHP: 1.14
Key Economic Reports
Initial jobless claims released at 8:30am EST: 240,000 (actual) vs. 244,000 (estimate)
July PMI services index to be released at 9:45am EST: 54.2 (estimate)
June factory orders to be released at 10:00am EST: +2.7% (estimate)
July ISM non-manufacturing index to be released at 10:00am EST: 56.9 (estimate)
Happy trading!
Tom
