Market Recap for Thursday, April 27, 2017
Consumer discretionary (XLY, +0.53%) led the bifurcated action on Thursday as travel & tourism ($DJUSTT), gambling ($DJUSCA) and toys ($DJUSTY) all broke to fresh new highs helping to lead the sector higher. The XLY has broken out and is leading once again on a relative basis vs. the benchmark S&P 500 so I'd consider looking at these three groups, in addition to other industry groups within the discretionary space. However, of the three mentioned above, only toy has a strong historical track record in May as you can see below in the Historical Tendencies section. XLY's recent relative strength is reflected in the Current Outlook section below.
Energy (XLE, -1.09%) was easily the laggard on Thursday, but it appeared to print a hammer near fairly significant support so perhaps we'll get at least a short-term bounce here. Check out the chart:
There seems to be multiple support areas between 66-68 so the hammer on Thursday could provide reason for traders to begin buying this absolutely beaten-down sector. The red directional line tells us all we need to know about the performance of the XLE since December.
Pre-Market Action
There were a number of significant earnings reports out last night after the closing bell. Google (GOOGL) and Amazon.com (AMZN) were both greeted favorably by traders after reporting solid results.
Crude oil ($WTIC) is up nicely this morning while global markets are mixed. With 30 minutes to go to the opening bell, Dow Jones futures are up 23 points.
Current Outlook
My view of the short-term has turned more bullish recently on the heels of key global breakouts, especially in Germany, and the bullish rotation among sectors. Nowhere is that clearer than with the consumer discretionary space (XLY). The XLY has broken a bullish relative wedge vs. the S&P 500 and it's been wildly outperforming the more conservative consumer staples space (XLP). Look at this chart:
History tells us that when these ratios are climbing along with absolute S&P 500 prices, the rally is typically quite sustainable. Therefore, I'm looking for higher S&P 500 prices during May.
Sector/Industry Watch
Internet stocks ($DJUSNS) are likely to see another pop today after Alphabet's (GOOGL) positive results last night were better than expected. The DJUSNS is one of the best performing industry groups historically during the month of May and they're about to enter May with a lot of bullish momentum. Here's the current chart:
The DJUSNS is overbought, but volume certainly supports the recent push higher. Also, momentum seems to be building again now that the prior negative divergence was followed by MACD centerline and 50 day SMA tests.
Historical Tendencies
Toys ($DJUSTY) have just broken out again technically and are heading into May, one of its best historical months of the year. Check out its seasonal pattern:
June and July tend to be average at best so I'm looking for toys to continue to provide leadership over the next 30 days.
Key Earnings Reports
(actual vs. estimate):
CL: .67 vs .66
CVX: .85 (estimate)
GM: 1.70 vs 1.45
HMC: .47 vs .21
XOM: .95 vs .85
Key Economic Reports
Q1 GDP released at 8:30am EST: +0.7% (actual) vs. +1.1% (estimate)
April Chicago PMI to be released at 9:45am EST: 56.5 (estimate)
April consumer sentiment to be released at 10:00am EST: 98.0 (estimate)
Happy trading!
Tom
