Market Recap for Tuesday, September 11, 2018
All of our major indices finished the day higher, although there was little back and forth action. The Dow Jones traded in a 50 point range most of the afternoon. Still, higher is higher. Strength on Tuesday came from three sectors - energy (XLE, +0.95%), technology (XLK, +0.85%) and consumer discretionary (XLY, +0.80%). Two notable NASDAQ companies bounced off key rising 20 day EMA support, as I would expect. The first is Apple, Inc. (AAPL):
The blue directional lines show that as AAPL's price was moving higher, so was its PPO. That's a signal of very strong price momentum. Then check out the volume on the recent price moves higher - very strong as well, a signal of accumulation. Given these technical conditions, I fully expect to see rising 20 day EMA support hold (green arrow), which is exactly what we saw on Tuesday.
Amazon.com (AMZN) is another solid example:
It'll be important to watch the next price highs on both AAPL and AMZN. We'll likely see negative divergences as a new price high is reached, but what will the volume show? Lighter than normal volume would suggest a bit deeper selling, while heavy volume would make negative divergences less of an issue.
Two defensive sectors - consumer staples (XLP, -0.37%) and utilities (XLU, -0.26%) - were the weakest areas of the market.
Special Note
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Pre-Market Action
Crude oil prices ($WTIC) are on the rise this morning after a 2.5% rise on Tuesday. This morning, the WTIC is trading just over $70 per barrel, up 1.13% at last check. Asian markets were mostly fractionally lower overnight, while European indices are fractionally higher. Those mixed markets have left Dow Jones futures flat as we approach today's opening bell.
Current Outlook
The 10 year treasury yield ($TNX) now appears to be on the rise again, poised to threaten the 3.0% yield resistance level in the very near-term. A rising TNX generally coincides with a strong financial sector (XLF). Financials have struggled relative to the benchmark S&P 500 in 2018, however, so we should watch for a relative breakout to the upside or a test of key relative support before overweighting the group. Fundamentals could begin to align positively, but I want to see price evidence of strengthening momentum before becoming more aggressive in this sector. Here's the chart:
The red dotted line marks the key relative resistance. When this relative downtrend ends, it'll likely be accompanied by a significant breakout in the TNX - either at 3.00% or possibly 3.11%, the latter of which is much more significant psychologically. This development would likely see serious rotation back into financials.
Sector/Industry Watch
Internet stocks ($DJUSNS) should continue to be watched very closely. It's not unusual at all to see neckline and 20 day EMA resistance tests after a head & shoulders breakdown. So I'd view such tests as nothing more than a technical bounce....unless both these levels can be recaptured on a closing basis:
If you own Facebook (FB), Alphabet (GOOGL), Twitter (TWTR), or other internet stocks, and you're wondering why they're not performing well, look no further than the above chart and technical deterioration. The group has been under very heavy selling pressure since the July top and head & shoulder breakdowns can be scary because of their measurement implications. A further short-term bounce to the 1720-1730 range wouldn't be a shock, especially if the overall market remains strong, but beyond that becomes questionable and very important technically. The top of the head (1950) down to the neckline (1720) measures 230 points. After breaking neckline support, the target is now 1490, which is very close to the late March low closer to 1475. Unless we see a definitive close above 1730, and on increasing volume, I'd be expecting further deterioration in internet stocks before we see improvement. A warning later this month by Facebook (FB) could be the catalyst. One of my favorite sayings on Wall Street is "there's never just one cockroach in the kitchen". Facebook has already announced two cockroaches - the Cambridge Analytica fiasco in March and then the quarterly earnings debacle in July. It isn't out of the question that we'll see a third cockroach emerge later this month.
Historical Tendencies
The second weakest calendar month of the year for coal ($DJUSCL) has been September as the index has dropped, on average, 4.2% during September over the past 18 years. Surprisingly, however, coal joins truckers ($DJUSTK) as the two best performing industry groups thus far in September 2018. The DJUSCL closed near 80 yesterday and the two most recent rallies have failed close to 82.50. That's an area to watch closely for a possible reversal given the historical weakness this time of year.
Key Earnings Reports
(reports after close, estimate provided):
PVTL: (.09)
Key Economic Reports
August PPI released at 8:30am EST: -0.1% (actual) vs. +0.2% (estimate)
August Core PPI released at 8:30am EST: -0.1% (actual) vs. +0.2% (estimate)
Happy trading!
Tom
