Market Recap for Wednesday, March 29, 2017
We haven't discussed leadership from retail (XRT) in quite some time, but we saw many retailers outperforming on Wednesday. The obvious question is whether this leadership will continue for an extended period. Well, first keep in mind that retail typically excels during the month of March - and it's almost over. April's also a strong seasonal period, however, so perhaps we'll see this week's strength accelerate. Check out the historical pattern over the past 12 years:
We are clearly in the sweet spot for the space seasonally. So then the question becomes.....how does the group look technically?
The XRT is trading in a fairly narrow 40.50-42.50 range for now and this week's strength has pushed the XRT up to challenge trendline resistance. Today will be interesting for the group.
Energy (XLE, +1.37%) was easily the best performing sector as crude oil ($WTIC) jumped back above $49 per barrel.
Pre-Market Action
The U.S. Dollar ($USD) is showing a bit of strength this morning against other currencies, extending its recent strength after the USD tested very significant price support at 99. That recent strength is negatively affecting gold ($GOLD), which is down $7 this morning to $1247 after approaching late February highs on Tuesday. Watch the USD at 99 and $GOLD at $1265. Those are very key levels in the short- to intermediate-term.
Crude oil ($WTIC) is up again this morning so traders will likely be looking for more strength from energy.
With 30 minutes left before trading opens, Dow Jones futures are down 6 points.
Current Outlook
The action in the Volatility Index ($VIX) this week suggests that the current bull market rally has not ended. While the VIX spiked to 15 on Monday reflecting increased nervousness, the recent winning streak on the NASDAQ and Russell 2000 has squashed all fears with the VIX hitting a low of 11.03 yesterday. This simply is not the level of expected volatility or fear where significant selloffs occur.
I would remain cautiously bullish to see what areas of the market lead the next rally - which I believe is in the process of occurring or will occur soon.
Sector/Industry Watch
Automobiles ($DJUSAU) are worth considering as we approach the month of April. Why? Well, it has tremendous seasonal strength during April as you can see from the chart below:
This is one of the oddest seasonal charts I've ever seen. Autos really haven't been great performers over the years and eight calendar months above show average monthly losses over the past 18 years. But don't blink during April or you'll miss the majority of gains in auto stocks. We've seen this group average gaining 9.7% during April since just before the turn of the century. Interesting indeed.
Historical Tendencies
April has been the 5th best calendar month in terms of NASDAQ performance over the last 20 years. Here's a breakdown of historical performance by calendar month:
Once we get past April, the May through September period has produced little in the way of gains over the past two decades. The bulls are looking to add to the current bull market rally based on seasonal tailwinds.
Key Earnings Reports
None
Key Economic Reports
Q4 Final GDP released at 8:30am EST: +2.1% (actual) vs. +2.0% (estimate)
Initial jobless claims released at 8:30am EST: 258,000 (actual) vs. 247,000 (estimate)
Happy trading!
Tom
