Market Recap for Tuesday, August 15, 2017
July retail sales doubled expectations (+0.6% actual vs +0.3% consensus estimate) and we saw the kind of reaction in the bond market that we'd expect with treasury prices tumbling and treasury yields spiking. But what happened to retail stocks? They fell out of bed with the S&P Retail ETF (XRT) dropping 2.7% and closing at its lowest level since the beginning of 2016. Can you imagine the bloodbath if retail sales had missed estimates?
So why the poor effort from retailers with solid fundamental news in play? Well, first let me say that's why we follow technical analysis here at StockCharts.com. As analysts, step one is IGNORE THE NEWS. Follow the charts. Price action tells a story and when that story's bleak, stay away. Retail has been in the dumpster for a long, long time and there's nothing technically that's suggesting that we want to be part of that group. Here's the chart of the XRT:
We just can't get involved with retail yet. The charts are saying no. Bottom feeding works once - at the very bottom. Good luck finding it. Currently, retail is much like energy (XLE). Avoid it.
The primary strength on Tuesday was among defensive stocks as utilities (XLU, +0.56%) and consumer staples (XLP, +0.51%) rose. Retail led consumer discretionary (XLY, -0.92%) lower, while energy (XLE, -0.38%) did what it seems to do most every day - lose ground.
Pre-Market Action
Target (TGT) delivered great results this morning, beating both top and bottom line Wall Street consensus estimates and the stock has bounced more than 3% in pre-market action. Technically, however, TGT needs to clear 58 with gusto and solid volume. Until then, I'd avoid it.
Yesterday, we saw strong retail sales do absolutely nothing for the group in terms of price action. In fact, the selling was shocking given the news. Today, we see an excellent performing group - home construction ($DJUSHB) - having to deal with lower than expected housing starts and building permits. The group closed at a fresh 2017 high on Tuesday, so it'll be very interesting to see if a technically healthy group continues to perform well despite not-so-great fundamental news.
Dow Jones futures are pointing to a higher open, up 45 points with 30 minutes left to the opening bell.
Current Outlook
Let's go back and look at the NASDAQ 100 ($NDX). If you recall, just before the last quick move lower, the NDX left a long tail above key short-term price resistance at 5935. We're approaching that level again so I'm watching to see if we can clear it this time:
The last time we looked at this chart, I saw bearish implications. I'm still very cautious because of long-term weekly negative divergences that have printed and the bearish seasonal conditions as well. But there's always another side of a story. The bullish argument is that we could be setting up in a continuation pattern - an inverse head & shoulders pattern with another trip to 5935 establishing the right side of a neckline. This pattern would not confirm until an inverse right shoulder were to print and we then saw a subsequent heavy volume breakout. It's worth considering this possibility and being aware of it technically.
Sector/Industry Watch
Tobacco ($DJUSTB) led the consumer staples rally on Tuesday, but given the chart, I wouldn't expect to see a whole lot of follow through just yet. Take a look:
A couple of big short-term tests await this group. There's overhead price resistance at approximately 910 and that level was touched yesterday. Then there's the declining 20 day EMA, which currently resides at 917. Clear both of those levels on a closing basis and we'll talk. Until then, no thank you.
Historical Tendencies
The first few days of a calendar month tend to be very strong because of money inflows. The same holds true for the beginning of the second half of the month. On the NASDAQ (since 1971), here are the annualized returns of the next few calendar days:
16th: +39.22%
17th: +10.61%
18th: +21.21%
Once this period ends, however, we enter a week of seasonal monthly weakness.
Key Earnings Reports
(actual vs. estimate):
TGT: 1.23 vs 1.20
(reports after close, estimate provided):
CSCO: .55
LB: .45
NTAP: .42
Key Economic Reports
July housing starts released at 8:30am EST: 1,155,000 (actual) vs. 1,225,000 (estimate)
July building permits released at 8:30am EST: 1,223,000 (actual) vs. 1,246,000 (estimate)
Happy trading!
Tom
