Market Recap for Friday, February 3, 2017
Financials (XLF, +2.02%) had another huge day with consumer finance, investment services and banks leading the charge. The former had been struggling with a negative divergence over the past couple months while remaining in an uptrend. But just after testing its 50 day SMA, the group rallied strongly on Friday to breakout:
The last time that the DJUSSF showed signs of slowing momentum was in early October and that was followed by selling down to its 50 day SMA. It happened again on Thursday, just prior to Friday's strength and breakout.
Pre-Market Action
With 30 minutes left before the open, Dow Jones futures are down 38 points following weakness this morning in Europe. Asia was strong overnight, however, with the Hang Seng Index ($HSI) up 219 points, or nearly 1%.
Gold is strong and threatening a short-term breakout above the 1220-1225 resistance range. At last check, gold was trading up 9 to 1219.
Current Outlook
The short-term trading range on the S&P 500 is from 2267 to just above 2300 and can be visualized looking at the following 15 minute 10 day chart:
As discussed below in the Historical Tendencies section below, the 7th to the 10th of the calendar month tend to be bearish. It would make sense for that to once again be the case as the S&P 500 is testing price resistance in the near-term.
Sector/Industry Watch
The Dow Jones U.S. Defense Index ($DJUSDN) has been consolidating over the past two months, but it's nearing a key resistance level and breakout. Check out the current technical picture:
The 2 month trading range of 345-357 is being tested on the upper side and I'm expecting to see leadership from defense stocks on the breakout.
Monday Setup
It takes patience to allow stocks to retreat to levels that make sense from a reward to risk perspective. Many times, it's simply sideways consolidation to unwind slowing momentum. Buying too early means becoming very frustrated as your stock does nothing but move back and forth in a narrow range. Unfortunately, time is of the essence to a short-term trader and stocks moving in sideways fashion is a waste of capital. Devry (DV) is a perfect example. After reporting solid earnings last quarter, DV meandered in sideways fashion the past 5-6 weeks as a negative divergence played out. Take a look:
After reaching its last high 3-4 weeks ago, DV has represented wasted capital as it's been unwinding its negative divergence. It tested its 50 day SMA on Friday and could be poised for another push to the upside. One word of caution, however. DV did miss its revenue estimate last week when its latest earnings were released. A close below the 50 day SMA on increasing volume could lead to more selling.
Historical Tendencies
The 7th through the 10th of calendar months tends to be a period of profit taking and consolidation and February is no exception. Since 1950 on the S&P 500, February 7th through 10th has produced annualized returns of -19.71%.
Key Earnings Reports
(actual vs. estimate):
CNA: .82 vs .82
HAS: .64 vs .28
L: .79 vs .63
MAT: .52 vs .71
NWL: .80 vs .80
RYAAY: .41 vs .45
SYY: .58 vs .54
TSN: 1.59 vs 1.27
(reports after close, estimate provided):
CBOE: .60
FMC: .89
FOXA: .49
Key Economic Reports
None
Happy trading!
Tom
