Market Recap for Thursday, May 23, 2019
Energy (XLE, -3.35%) has been a relative laggard for the past 8 years, mostly due to a rising U.S. Dollar Index ($USD). The group took another big blow yesterday as crude oil prices ($WTIC, -5.71%) tumbled and had its worst day of 2019. It raises the possibility of another swoon back to test the lower $40s per barrel:
While many headlines blamed the trade war for the big drop yesterday - and it most definitely played a hand in it - the bigger story was the breakdown in crude oil prices. Technically, the drop below both the 20 week EMA and 50 week SMA could fuel more selling.
Meanwhile, technology (XLK, -1.76%) suffered through another poor session as telecommunications equipment ($DJUSCT, -2.29%) gave back some of its recent gains that were led by Cisco Systems' (CSCO) earnings report. Computer hardware ($DJUSCR, -1.85%) was also among the weak performers as Network Appliance (NTAP, -8.11%) delivered poor results and a not-so-great outlook.
Defensive groups managed to hold up fairly well with utilities (XLU, +0.86%) and real estate (XLRE, +0.49%) the only two sectors to finish in positive territory. Among industry groups, the specialized consumer services ($DJUSCS, +1.11%) had a solid day after Copart (CPRT, +7.95%) delivered a solid earnings report and outlook. Check out the Sector/Industry Watch section for more details on the DJUSCS.
Pre-Market Action
Theresa May has resigned as UK Prime Minister over the Brexit crisis, but that's had little negative impact on global markets. China's Shanghai Composite ($SSEC) was flat overnight and I was anxious to see whether support would hold on its chart:
Last night's action isn't reflected on the above chart, but the SSEC closed up a half point to 2852.99. So far so good. Europe is having a solid morning thus far with the German DAX ($DAX) bouncing 90 points (+0.76%) at last check.
A big development yesterday was the 10 year treasury yield ($TNX) breaking through double bottom support at 2.36%. And it wasn't close. The TNX finished yesterday at 2.30%. It was a definitive breakdown and one worth watching.
Dow Jones futures appear to be taking a cue from Europe as they're higher by 111 points as we approach today's open.
Current Outlook
On an intraday basis, the S&P 500's bounce in the final hour on Thursday was kind of a big deal. After nearing a short-term support level, buyers returned. That beat the heck out of the alternative, which would have been an emotional breakdown to encourage more sellers this morning. Instead, the late-day buying has resulted in solid futures this morning. Here was the rally yesterday after 3pm EST:
Those two lines - support and resistance - are what I'm watching right now. If the S&P 500 dips back below 2800, that could be a big problem with the Volatility Index ($VIX) on the rise again, so be careful.
The good news is that today's close marks the beginning of a very strong seasonal period for the S&P 500. See the Historical Tendencies section below for more details there.
Sector/Industry Watch
Specialized consumer services ($DJUSCS) has been a relative leader since the December bottom and it's been quite a run - so much so that the group even managed to breakout on both an absolute basis and relative basis yesterday, despite the overwhelming selling that took place in our major indices:
Copart (CPRT) and MercadoLibre (MELI) are two strong relative performers in the group worth considering.
Historical Tendencies
I've posted on a couple occasions about the upcoming seasonal strength on the NASDAQ and Russell 2000. It most definitely applies to the S&P 500 as well. Since 1950, the May 26th through June 5th period has produced annualized returns of +29.12%. While this annualized return falls well short of the returns of the NASDAQ and Russell 2000, it's nonetheless triple the 9% that the S&P 500 has enjoyed throughout the year over the past seven decades.
Key Earnings Reports
(actual vs. estimate):
FL: 1.53 vs 1.61
Key Economic Reports
April durable goods released at 8:30am EST: -2.1% (actual) vs. -2.2% (estimate)
April durable goods ex-transports released at 8:30am EST: +0.0% (actual) vs. -0.1% (estimate)
Happy trading!
Tom
