Market Recap for Tuesday, December 20, 2016
Treasuries were sold off on Tuesday with the corresponding 10 year treasury yield ($TNX) moving back up to 2.57%. The recent high was 2.60% so the TNX is not far from another new high. Of course, the bounce in the TNX had one very obvious reaction in U.S. equities - financials (XLF, +1.24%) were back on top of the sector leaderboard with banks ($DJUSBK) leading the charge and on the verge of yet another breakout. The MACD has rolled over, however, potential evidence of slowing price momentum after a huge six week rally. If the DJUSBK breaks out, the key will be the volume on the advance. If it's heavy, then accumulation most likely will drive the group higher still. If volume tails off on the breakout, I'd grow more concerned near-term about a period of selling unlike anything the group has seen since early November. Here's the chart:
The red circle highlights the first bout of consolidation and profit taking the industry has seen since this parabolic rise began. It's become extremely overbought and price momentum is slipping. Be careful if volume drops significantly as another breakout occurs. If we do see further weakness ahead, I view it as an opportunity because I look for the TNX to test at least 3.0% in 2017 and banks should continue to perform well in a rising interest rate environment.
Energy (XLE, -0.22%) was the weakest performing sector on Tuesday as renewable energy stocks ($DWCREE) took a breather. I'm a big fan of the DWCREE in 2017 as I see a further rise coming in crude oil prices ($WTIC). In the very short-term, look for support on the DWCREE as follows:
The breakout after recently holding support at the rising 20 day EMA is bullish, as is the MACD centerline crossover. I'm looking for more strength here as crude oil prices rise in 2017.
Pre-Market Action
Crude oil ($WTIC) is moving higher again in pre-market action, rising another fraction as we prepare for a new trading day. Asia was mixed overnight with the China Shanghai ($SSEC) up more than 1%. In Europe, we're seeing very slight losses as the German DAX ($DAX) backs off of its attempt to clear 11500.
Dow Jones futures are up 11 points at last check.
Current Outlook
The S&P 500 remains quite bullish and is currently trading in a fairly narrow range between 2249-2275. I'm looking for a break to the upside, but we may see the consolidation continue for a period of time. Take a look:
The pink lines showed a negative divergence a few days ago, but that has been resolved with the MACD centerline and 50 period SMA tests (pink circles). Now the short-term momentum is neutral, but improving again. A close above 2275 would be bullish.
Sector/Industry Watch
The Dow Jones U.S. Footwear Index ($DJUSFT) will be in the spotlight today as Nike (NKE) has moved higher in pre-market action following better than expected EPS (.50 vs .43) after the bell on Tuesday. The DJUSFT has been under selling pressure, but a breakout could change the fortunes of the group. Check this out:
I think we've bottomed here and NKE will likely be the catalyst to turn the index around. The current trading range is 940-985. Whichever direction breaks first will likely provide us the clue for its future direction.
Historical Tendencies
December 21st marks the beginning of a very bullish week just before the Christmas holiday on the S&P 500. Annualized returns since 1950 are +76.54%, quite bullish indeed.
Key Earnings Reports
(actual vs estimate):
ACN: 1.58 vs 1.49
(reports after close, estimate provided):
MU: .24
RHT: .37
Key Economic Reports
Existing home sales to be released at 10:00am EST: 5,535,000 (estimate)
Happy trading!
Tom
