Market Recap for Monday, April 10, 2017
It was a back and forth kinda day on Wall Street with the finish coming up fairly flat with minor gains across the board. Tesla (TSLA) and Harley Davidson (HOG) were winners and helped lead automobiles ($DJUSAU) to leadership in the consumer discretionary sector (XLY, +0.37%). TSLA has been particularly strong since breaking out of a bullish cup with handle pattern. Take a look:
This has truly been a classic cup with handle pattern with volume building on the right side of the cup and then falling off as the handle formed. The breakout saw extremely heavy volume and the initial measurement of this pattern is to 325-330 based on the depth of the cup. TSLA has broken out to an all-time high so I don't believe 330 will be the top, just perhaps an area where we could see consolidation and some profit taking.
Energy (XLE, +0.75%) was the leader as crude oil ($WTIC) has rebounded to $53 per barrel on geopolitical concerns and the shutdown yesterday of Libya's largest oil field. Crude is flat this morning in pre-market trade.
Pre-Market Action
The 10 year treasury yield ($TNX) is down this morning to 2.34% with a major intraday yield support level now at 2.27% and a closing yield support level at 2.30%. This needs to be monitored closely, especially if you own banks ($DJUSBK) or life insurance companies ($DJUSIL) in your portfolio as both have very strong correlation with the TNX.
Geopolitical concerns have gold ($GOLD) on the rise again this morning, up 7.50 to $1261.
U.S. futures are flat as we approach a new trading day, starting in 30 minutes.
Current Outlook
I believe it's worth watching the Volatility Index ($VIX) for clues about the direction of U.S. equity prices - and the potential start of a bear market. Below are two charts of the VIX - one in 2007 just before the last bear market and the other in 2000 just before the other bear market this century:
2007:
2000:
The red dotted vertical lines highlight the final fateful price highs just prior to major bear markets. During bull markets, the VIX typically falls to the 10-12 level on price advances to new highs on the S&P 500. But in both cases above, the final highs were accompanied by VIX readings that only fell to the 16-17 range. The significance of this is that a bear market requires fear much the same way that a tornado needs certain conditions to form.
Currently, the VIX is 14.05. A push through 17 should be respected on an S&P 500 drop, but the more important issue is what happens to the VIX on that next rebound in the S&P 500? Does it remain elevated above 16-17? If so, we could have problems on our hand. Until then, I'll remain cautiously bullish U.S. equities.
Sector/Industry Watch
The Dow Jones U.S. Retail REITs Index ($DJUSRL) has been floundering, but it's at a key price support level and is showing slowing momentum on a weekly basis. Check out this chart:
One component in this space worth considering is Realty Income (O), which pays a monthly dividend and currently carries a dividend yield in excess of 4%.
Historical Tendencies
The 11th to 18th tends to be quite bullish as the market anticipates positive money flows mid-month. Since 1950 on the S&P 500, the 11th to 18th of all calendar months has produced annualized returns of 13.75%, much more than the average annual return of roughly 9%. In other words, there's clearly a more bullish bias for equities over the next week historically.
During the same 11th to 18th period on the NASDAQ (since 1971), the annualized return is 17.04%.
Key Earnings Reports
(actual vs. estimate)
OZRK: .73 vs .71
Key Economic Reports
None
Happy trading!
Tom
