Market Recap for Friday, June 23, 2017
It's been a rough ride for crude oil ($WTIC) over the past several months and the steady march lower has taken oil back to test its November low just above $42 per barrel. It hasn't been a robust advance since touching support, but it's been a bounce nonetheless and the bulls will be trying to hold onto that support. Here's a visual:
It's certainly not a pretty picture. The MACD is well below its centerline and continues to fall as selling momentum has accelerated. That suggests a bounce will likely fail at the 20 day EMA, currently at $45.47 per barrel. The weakness in crude has kept selling pressure on the energy sector (XLE, +0.67%) throughout 2017, but yesterday's bounce helped to alleviate a bit of pain as the XLE was the sector leader on Friday. Not far behind was technology (XLK, +0.63%) on the heels of strength in internet ($DJUSNS) and software ($DJUSSW) stocks.
The Dow Jones finished down a fraction on Friday, while the other major indices finished higher. Financials (XLF, -0.38%) were the primary drag, although utilities (-0.34%) also struggled. Banks ($DJUSBK) are baffling traders with just about every significant price move turning out to be a false move. More on the DJUSBK in the Sector/Industry Watch section below.
Pre-Market Action
Treasuries are unchanged this morning, while gold ($GOLD) has tumbled more than $14 and is at a six week low. Crude oil ($WTIC) continues to regain its footing as it's slightly higher this morning and back above $43 per barrel. As mentioned above, there's short-term room to $45 per barrel before the declining 20 day EMA will become a technical obstacle.
Dow Jones futures are up 71 points a little more than 30 minutes from the opening bell, following the lead of global markets, which mostly have headed higher overnight in the 0.50%-1.00% range.
Current Outlook
Technology (XLK) has been the relative leader of the S&P 500 for more than a year and it's recent given up a bit of its leadership role to healthcare (XLV) as biotechs ($DJUSBT) have caught fire and cleared overhead resistance near 1800. The XLK hasn't thrown in the towel just yet, however, and its close on Friday was its highest in two weeks:
Momentum is strengthening now, but note that the initial weakness in June began after an ominous negative divergence printed on the June 9th high.
Over the past two months, a key pivot point just above 56 has emerged and XLK was able to clear that level on the close Friday so look for more strength here. Just above 57.25 will be a challenge, though, as many technology stocks sold off on very heavy volume when the XLK was at that level. I'd expect to see sellers line up at that level.
Sector/Industry Watch
I've covered the Dow Jones U.S. Banks Index ($DJUSBK) rather closely in 2017 as I've expected leadership from the group. Unfortunately, the bond market hasn't felt so good about the economy with the 10 year treasury yield ($TNX) falling throughout much of the year and currently residing at just 2.15% - flat thus far this morning. Rising yields help banks while declining yields cramp net interest margins. Check out this chart:
The MACD is showing little in the way of momentum. It seems as though each time banks get started in one direction or the other, they falter and begin moving back in the opposite direction. Banks are vital to the performance of our economy and they seem to be giving us the same mixed signals about our economy that bond traders are giving us.
Monday Setups
G-III Apparel Group (GIII) is an interesting stock that appears to be breaking a downtrend. I featured this stock during my Earnings Spotlight segment on MarketWatchers LIVE a couple weeks ago using a daily chart and showing the gap higher and heavy volume appearing to break a short-term downtrend. But the longer-term chart looks interesting as well with a positive divergence. Check it out:
There's considerable risk in GIII because of the downtrend that it remains in, but if this positive divergence has marked the bottom, there could be lots of upside. A weekly close back beneath the now-rising 20 week EMA would be a negative development, while a break above the declining 50 week SMA would be quite bullish.
Historical Tendencies
Looking ahead and once we clear today (June 26th, which historically ends a bearish period), the S&P 500 has produced positive returns for every calendar day from June 27th through July 9th with all but three of those returns in double digits. Most of the strength tends to occur in early July, although June 28th (+48.59%) and June 30th (+26.27%) are generally strong. July opens the month with a bang as July 1st has produced annualized returns of 63.74% since 1950.
Key Earnings Reports
None
Key Economic Reports
May durable goods released at 8:30am EST: -1.1% (actual) vs. -0.4% (estimate)
May durable goods ex-transports released at 8:30am EST: +0.1% (actual) vs. +0.5% (estimate)
Happy trading!
Tom
