Trading Places with Tom Bowley

These Are Two Very Bullish Components Of The NASDAQ 100

I'll return tomorrow morning with my regular Trading Places article with all the normal features.  Today I simply want to point out two component stocks in the NASDAQ 100 ($NDX) that look very bullish to me.  The first is Costco (COST).  Basing patterns that finally breakout can lead to months or years of solid gains so I'm looking for COST to outperform the NDX in the foreseeable future.  Take a look at the chart:

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February Has Sent This Stock Higher 95% Of The Time Over The Last Two Decades

Market Recap for Monday, February 13, 2017

Recent leadership from financials (XLF, +1.14%) and industrials (XLI, +1.00%) appears to be resuming as these two groups led the benchmark S&P 500 to fresh all-time highs on Monday.  The last week has been very strong for U.S. equities and it's very bullish to watch industrials (+2.62% over the past week), consumer discretionary (XLY, +1.89%) and financials (XLF, +1.86%) lead the march higher.  While you might be upset that technology is not among the leaders, you really shouldn't fret.  History tells us that technology does not lead the stock market in the February to April time frame.  Check out the following seasonality chart that shows relative weakness in the XLK vs. the benchmark S&P 500:

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Aerospace Strength Sends Industrials To All-Time High

Market Recap for Friday, February 10, 2017

Materials (XLB, +0.91%) and industrials (XLI, +0.79%) led yet another rally in U.S. equities on Friday as the Dow Jones, S&P 500, NASDAQ, NASDAQ 100 and the Russell 2000 all established new all-time closing highs.  The small cap Russell 2000 index ($RUT) performed best on Friday, and had a final thrust higher at the very end of Friday's session to fractionally clear its all-time high.  Check it out:

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This Financial Industry Group Is Poised For A Big 2017

Special Note

Greg Schnell (author of The Canadian Technician blog) and I will be co-hosting a special webinar tomorrow at 11am EST.  I'll discuss trading strategies with respect to gaps created by earnings reports while Greg's discussion will focus on his outlook for biotech stocks.  Greg will also cover the huge advantages of creating ChartLists to organize your stock trading.  It should be very educational and informative and we'd love to have you join us.  It is a members only webinar, though, so if you're not a member, it's a great time to sign up for a 10 day FREE trial to gain access to the webinar and join us in the morning.

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Utilities Break To Four Month High; Consumer Stocks Strong

Market Recap for Wednesday, February 8, 2017

The 10 year treasury yield ($TNX) has dropped back toward the lower end of its 2-3 month trading range from 2.30% to 2.60%, closing on Wednesday at 2.35%.  That apparently has been enough to spark utilities (XLU, +0.98%) as this defensive sector trails only consumer staples (XLP, +0.41%) in terms of its one week performance.  Here's the latest daily chart on the XLU:

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Dow Jones Sets New All-Time High

Market Recap for Tuesday, February 7, 2017

The Dow Jones moved into blue sky, all-time high territory intraday on Tuesday as it touched 20155.  If there was any bad news, it's that the move didn't hold into the close as the Dow came up 10 points short of closing at an all-time high.  Still, there's clearly a bid under the market and any type of selloff is difficult to sustain.

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Key Relative Ratios Argue For Continuing Rally

Market Recap for Monday, February 6, 2017

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It's noteworthy to point out that Apple (AAPL) closed above 130 per share for the first time in its history yesterday.  While that didn't exactly light a fire under technology stocks (XLK, +0.06%), we did see outperformance from the group and certainly benefited the computer hardware group ($DJUSCR), which gained 0.72% and closed at 1846, just four points beneath its all-time closing high of 1850, established two years ago.  Check out this longer-term weekly chart:

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Financials Lead Dow Jones Back Above 20,000

Market Recap for Friday, February 3, 2017

Financials (XLF, +2.02%) had another huge day with consumer finance, investment services and banks leading the charge.  The former had been struggling with a negative divergence over the past couple months while remaining in an uptrend.  But just after testing its 50 day SMA, the group rallied strongly on Friday to breakout:

The last time that the DJUSSF showed signs of slowing momentum was in early October and that was followed by selling down to its 50 day SMA.  It happened again on Thursday, just prior to Friday's strength and breakout.

Pre-Market Action

With 30 minutes left before the open, Dow Jones futures are down 38 points following weakness this morning in Europe.  Asia was strong overnight, however, with the Hang Seng Index ($HSI) up 219 points, or nearly 1%.

Gold is strong and threatening a short-term breakout above the 1220-1225 resistance range.  At last check, gold was trading up 9 to 1219.

Current Outlook

The short-term trading range on the S&P 500 is from 2267 to just above 2300 and can be visualized looking at the following 15 minute 10 day chart:

As discussed below in the Historical Tendencies section below, the 7th to the 10th of the calendar month tend to be bearish.  It would make sense for that to once again be the case as the S&P 500 is testing price resistance in the near-term.

Sector/Industry Watch

The Dow Jones U.S. Defense Index ($DJUSDN) has been consolidating over the past two months, but it's nearing a key resistance level and breakout.  Check out the current technical picture:

The 2 month trading range of 345-357 is being tested on the upper side and I'm expecting to see leadership from defense stocks on the breakout.

Monday Setup

It takes patience to allow stocks to retreat to levels that make sense from a reward to risk perspective.  Many times, it's simply sideways consolidation to unwind slowing momentum.  Buying too early means becoming very frustrated as your stock does nothing but move back and forth in a narrow range.  Unfortunately, time is of the essence to a short-term trader and stocks moving in sideways fashion is a waste of capital.  Devry (DV) is a perfect example.  After reporting solid earnings last quarter, DV meandered in sideways fashion the past 5-6 weeks as a negative divergence played out.  Take a look:

After reaching its last high 3-4 weeks ago, DV has represented wasted capital as it's been unwinding its negative divergence.  It tested its 50 day SMA on Friday and could be poised for another push to the upside.  One word of caution, however.  DV did miss its revenue estimate last week when its latest earnings were released.  A close below the 50 day SMA on increasing volume could lead to more selling.

Historical Tendencies

The 7th through the 10th of calendar months tends to be a period of profit taking and consolidation and February is no exception.  Since 1950 on the S&P 500, February 7th through 10th has produced annualized returns of -19.71%.

Key Earnings Reports

(actual vs. estimate):

CNA:  .82 vs .82

HAS:  .64 vs .28

L:  .79 vs .63

MAT:  .52 vs .71

NWL:  .80 vs .80

RYAAY:  .41 vs .45

SYY:  .58 vs .54

TSN:  1.59 vs 1.27

(reports after close, estimate provided):

CBOE:  .60

FMC:  .89

FOXA:  .49

Key Economic Reports

None

Happy trading!

Tom

February Is A Time For Toys And The Chart Agrees

Market Recap for Thursday, February 2, 2017

Defensive stocks were once again at the forefront of U.S. stock market action on Thursday with utilities (XLU, +1.06%) and consumer staples (XLP, +0.92%) easily the best two sectors on the session.  Over the past week, healthcare (XLV, +2.79%), utilities (XLU, +0.91%) and consumer staples (XLP, -0.02%) have been the three best performing sectors.  There have been a few reasons for it.  First, the U.S. stock market is in consolidation mode with the benchmark S&P 500 index down close to 1% from a week ago.  Second, the 10 year treasury yield ($TNX) has been declining over the past week and that's generally a reason for investors to rotate into the high-yielding, defensive utilities sector.  Finally, the steady decline in the U.S. Dollar ($USD) in 2017 has driven more traders toward gold ($GOLD).

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Healthcare Leads Wednesday Rally But Still Suffers From Relative Weakness

Market Recap for Wednesday, February 1, 2017

U.S. equities staged a recovery on Wednesday after a recent bout of profit taking, but the recovery could've been much stronger after a very solid open.  The NASDAQ jumped 40 points at the open after Apple (AAPL) posted results well in excess of Wall Street consensus estimates.  Unfortunately, most of those opening gains were gone by noon EST before an afternoon rally secured the strong performance by technology (XLK, +0.76%).  Still, much of the strength was seen in computer hardware, semiconductor and internet shares.  Six of the eleven industry groups in technology finished lower on the session so it clearly was not a day of wide participation.

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