Market Recap for Thursday, August 15, 2019
There were a ton of economic reports out on Thursday, mostly positive, and that seemed to slow the onslaught of selling as our major indices finished mixed on the session. Walmart, Inc. (WMT, +6.11%) surged following better-than-expected earnings to lift the Dow Jones, which gained 100 points back. That may not seem like much after an 800 point drop the day before, but at least it temporarily slowed the panic. The S&P 500 held onto key short-term price support just below 2850 as well:
Failure to hold this area of support would likely lead to further weakness, perhaps even to test the March/June double bottom low close to 2725. That would represent roughly a 10% correction.
The one problem with yesterday's recovery attempt was that defensive stocks led the charge. Consumer staples (XLP, +1.50%), real estate (XLRE, +1.40%), and utilities (XLU, +1.29%) were the primary drivers of the rally and that's never a good thing. If we see a reversal here and a move higher, that needs to change. We want to see market participants willing to take risks on aggressive areas.
Pre-Market Action
It will be interesting to see how the market interprets the housing starts report this morning. Starts were well below forecasts, but permits were well above. I would expect it to be a favorable response as rising permits can signal a more robust market, but we'll soon find out.
The 10 year treasury yield ($TNX) is up 3 basis points and that is providing a bit of relief. Dow Jones futures are up roughly 200 points as we approach the opening bell.
NVIDIA Corp (NVDA) is up nearly 6% in pre-market action, which should provide a lift to semiconductors today. However, Applied Materials (AMAT) is down 3% despite beating on its top and bottom lines.
Current Outlook
The German DAX ($DAX) broke its 7-8 year trend channel in 2018 and that most definitely raises an eyebrow, but we also must consider that the channel spanned a low of 5200 and a high of 13500. That type of growth trajectory is simply unsustainable. While technically it's something to note, it's also something that was inevitable. I'd be much more concerned if the DAX were to break below its most recent intermediate-term low near 10500. Until then, I'd look for more consolidation between 10500 and 13500:
I think most economists would agree that the U.S. economy is stronger than most countries around the globe, so outperformance in the S&P 500 is to be expected. But until we see a meaningful breakout in global markets, I doubt we'll a meaningful breakout here. Trade war resolution would likely be a catalyst to jump start global equity markets.
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Sector/Industry Watch
Yes, energy (XLE) has been a very difficult area in 2019, with a couple of its industry components down substantially this year. No industry group, however, has performed worse than tires ($DJUSTR), which has tumbled more than 45% year-to-date. And when I look at this chart, I can't see much short-term hope here. Perhaps value investors can apply, but those with a technical bias are going to have issues:
There really hasn't been any relative strength since mid-April. It's nearly impossible to make money in a group whose relative strength is so dismal.
Pass.
Historical Tendencies
The Dow Jones U.S. Tires Index ($DJUSTR) doesn't care much for the upcoming month of September. Given it's current technical state, that's a double dose of bad news:
The August through October period has seen the DJUSTR average declining 8.9% over the past 20 years, but September has been the worst month.
Key Earnings Reports
(actual vs. estimate):
DE: 2.71 vs 2.80
QD: .59 vs .53
Key Economic Reports
July housing starts released at 8:30am EST: 1,191,000 (actual) vs. 1,259,000 (estimate)
July building permits released at 8:30am EST: 1,336,000 (actual) vs. 1,270,000 (estimate)
August consumer sentiment to be released at 10:00am EST: 97.5 (estimate)
Happy trading!
Tom
