Market Recap for Thursday, March 23, 2017
The Russell 2000 gained on Thursday while the other major indices declined slightly due to a selloff in the final three hours. Six of nine sectors finished in negative territory, led by energy (XLE, -0.41%). Oil & equipment services ($DJUSOI) led the decline in energy, setting a fresh recent low. The good news, however, is that price support is being tested as the index prints a positive divergence. Here's the chart:
The low prior to the huge advance in early December was approximately 480 and that's where we finished yesterday.
To the upside, we saw leadership from materials (XLB, +0.42%), consumer discretionary (XLY, +0.23%) and financials (XLF, +0.21%). Commodity chemicals ($DJUSCC) bounced beautifully off its 50 day SMA test and doji from Wednesday and gained 1.10% yesterday. This is one of the strongest industry groups in materials and a close above 450 on increasing volume would be bullish.
Pre-Market Action
Headline durable goods for February came in slightly ahead of expectations and currently Dow Jones futures are up 54 points approximately 30 minutes from the opening bell. Overnight, Asian markets were higher with the Tokyo Nikkei ($NIKK) leading the charge and bouncing off 19000 support. European markets are trading near the flat line.
Current Outlook
We've seen some weakness in the near-term to help alleviate overbought conditions. The obvious question is how low might we go? On a longer-term weekly S&P 500 chart, the rising 20 week EMA is at 2293. Weekly momentum is very strong so I'd expect that EMA to hold as support. Keep that in mind as we look at the short-term intraday chart:
We saw the S&P 500 bounce four times off 2360 support (green arrows) before losing it on Tuesday's heavy selling. Yesterday's recovery nearly tested that level (red arrow). So the first test for the bulls will be clearing 2360. To the downside, there's price support at Tuesday's low, just beneath 2340. The blue directional line shows a very quick and steady march from 2300 to 2340 after breaking price resistance near 2300. Therefore, if we fail to hold Tuesday's low, I could see a very quick move back to 2300, which brings me to that 20 week EMA support mentioned above. I see the short-term trading range as 2336-2360 while the more intermediate-term trading range is 2293-2400.
Sector/Industry Watch
The Dow Jones U.S. Biotechnology Index ($DJUSBT) recently broke out above significant price at 1800. Unfortunately, the breakout was not confirmed by any follow through and the DJUSBT has lost 4-5% since. When I see a breakout, I look for two areas in terms of support. First, I look to the breakout level - in this case 1800. That didn't work so next up is the rising 20 period EMA. Here's the visual on a weekly chart:
The weekly MACD had a bullish centerline crossover earlier in 2017 and typically the rising 20 week EMA provides support on pullbacks. That level is at 1708. I'd be careful if we see a weekly close beneath 1708. In the meantime, the reward to risk is building quite nicely on the group.
Historical Tendencies
One historical tendency that I look for is market strength the last several days of a calendar month. On the S&P 500 since 1950, I've broken down the annualized return for the 26th through the 31st for ALL calendar months vs. that same period in March. Here are the results:
26th through 31st (all calendar months): +15.20%
March 26th through 31st: -4.87%
Historical strength at the end of the month doesn't tend to materialize during March.
Key Earnings Reports
None
Key Economic Reports
February durable goods released at 8:30am EST: +1.7% (actual) vs. +1.5% (estimate)
February durable goods ex-transports released at 8:30am EST: +0.4% (actual) vs. +0.8% (estimate)
March PMI composite to be released at 9:45am EST: 54.3 (estimate)
Happy trading!
Tom
