So, If you’re a slacker and just took a wrap-around 4 day weekend, not to worry, we’re pretty much right where we were when you punched out late Thursday afternoon.
But Seriously……Let’s cut right to the chase.
The net of the ridiculous bungee jump and recoil that the markets took us on the last 2 days is that Major Market Averages are fractionally lower by -0.2% to – 0.5%.
The DJIA at 18,035, S&P 500 at 2100.40 and NASDAQ at 4994.60 continue to remain in a Big Boy’s battle with “Round Number Resistance” levels.
The Russell 2000, at 1265 and the NYSE Composite, at 11,116 are each -0.5% lower than their all time closing highs from Thursday.
Russell 2000, IWM ETF Chart
The Net of Market Internals the last 2 days is clearly negative.
On the way down Friday declining issues led advancers by better than 4 to 1. DVOL was 5x UVOL. For the 80%+ rebound Monday, advancing issues were barely 2x decliners while UVOL was not quite double DVOL. As we’re looking at moderate gains to start the day this morning, keep a close watch on market breadth as an indicator for whether an early rally can follow through the entire day.
The DJ Transports at 8794 and the DJ Utilities at 591.50, are each + 1% from Thursday night, clearly the standout performers of the last 2 days.
Watch the 8800 level on the DJ Transports with great interest, as a convincing close above that level would potentially complete a 3 to 4 week short term bottoming pattern.
Monday’s close of 8794 for the DJT was the highest close since March 23, but we’d like to see a close above 8800 with some follow through as a convincing sign that a near term low for the Transports is in.
Utilities are trying to get their footing and recover from a rough patch the last 10 weeks.
The sector is down 10% from their high water mark at the end of January. Since then they have been both a source of funds for institutional holders as well as a target for macro short sellers anticipating the eventual interest rate hikes from the FED.
As an example of how out of favor Utilities have fallen in a relatively short period of time, there are 3 Utility stocks: SCG, TE, and OKE, on a recent report by Merrill Lynch of the 10 Most Under Owned Stocks by Large Cap Portfolio Managers.
Not quite the “Dogs of the DJIA”, but with the benchmark 10 year yield holding under 2% and expectations for the first rate hike being pushed out to at least September, it wouldn’t be surprising to see lift in the sector.
Earnings Season will dominate investor focus the next 2 to 3 weeks, as reporting companies attempt to fine tune the “under promise, over deliver” mantra.
Initial market reactions to Headline Reports are often short lived, from both the “hair trigger” reaction of novice participants, and headline reading Algos gone wild. Stay disciplined and be selective. Your trading plan should be your guide in this bi-polar tape.
Tim Anderson Managing Director TJM Investments, LLC
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