Trading Places with Tom Bowley

Wall Street Rallies As We Near Record Highs Once Again

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Market Recap for Thursday, September 12, 2019

Apparently we're back in the "feel good" portion of the trade war as President Trump announced on Thursday that there would be a tariff delay, providing a "gesture of good will". Accordingly, global markets have rallied and that rally included U.S. stocks. Despite final hour selling, the NASDAQ, S&P 500 and Dow Jones ended the session with gains of +0.30%, +0.29%, and +0.17%, respectively. The small cap Russell 2000 paused, losing less than 1 point after rallying strongly this week.

Despite a lot of negativity, especially in terms of relative strength, the long-term weekly chart on the Russell 2000 remains quite bullish:

Those big drops in the Russell 2000 in 2011, 2016, and 2018 mark major bottoms allow us to connect a very important bull market trendline. We get caught up in the day-to-day underperformance of small caps and sometimes lose sight of the bigger picture. Hopefully, this gives everyone a different perspective.

Materials (XLB, +0.78%) led the rally on Thursday as all sectors are looking to participate in what could be another record all-time high in U.S. equities later today.

Pre-Market Action

U.S. equities are set to follow global equity prices higher. After solid action in Asia overnight and further strength in Europe this morning, Dow Jones futures are higher by more than 100 points this morning and moving closer to an all-time high.

The 10 year treasury yield ($TNX) is flat this morning and currently resides at 1.79%, the same level as its 50 day SMA. The TNX last closed above its 50 day SMA in early March.

Current Outlook

Momentum has clearly turned bullish as we approach all-time highs. The S&P 500's daily PPO is accelerating rapidly to the upside as we now have a clear area of support to watch on any short-term pullbacks:

I would look for 2940-2960 to provide excellent short-term support during any bouts of selling. Also, the green arrow marks the rising 20 day EMA, which provides great support during periods of rising prices.

Sector/Industry Watch

Specialized consumer services ($DJUSCS) is part of the consumer discretionary sector. While many stocks struggled in August, the DJUSCS actually pushed to new highs, but as our major indices rise in September, the DJUSCS is hesitating and consolidating. What gives?

If 1815-1820 price support is lost, the DJUSCS could fall to test its early August low near 1750. However, if support continues to hold, I'd look to see if the DJUSCS can break to new highs AND also see if the relative strength line begins to turn higher again.

Historical Tendencies

Since 1950, Fridays have produced annualized returns of +17.32%, nearly doubling the S&P 500's average annual return of roughly 9%.

Key Earnings Reports

None

Key Economic Reports

August retail sales released at 8:30am EST: +0.4% (actual) vs. +0.2% (estimate)

August retail sales less autos released at 8:30am EST: +0.1% (actual) vs. +0.3% (estimate)

July business inventories to be released at 10:00am EST: +0.3% (estimate)

September consumer sentiment to be released at 10:00am EST: 91.0 (estimate)

Happy trading!

Tom

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Tom Bowley
About the author: co-founded Invested Central in 2004 and served as the site's Chief Market Strategist for more than 10 years. Invested Central provides stock market education and guidance for those interested in making their own financial decisions. During his tenure at Invested Central, Tom co-hosted Market Open LIVE, a national radio broadcast that covered many of the largest markets across the U.S. In addition, he has spoken at various conferences throughout the United States and Canada and has taught thousands of traders across the globe how to trade equities more wisely with an emphasis on managing risk and intermarket relationships. Learn More
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