Leadership was witnessed Tuesday within the Dow. Keep in mind this is a laggard as the benchmark is clinging on to UNCH territory on a YTD basis. If one wants to use an analogy comparing sector strength it could be akin to the defensive groups shining recently. Volume has been uninspiring, but PRICE action is solid as the Dow has recouped both its 50 and 200 day SMAs in the last 3 days.
The Russell 2000 recorded a bearish engulfing candle at the round 1700 number, which could be interpreted as a double top with the 6/21 session which also sported a bearish engulfing candle at all time highs. This index is a leading indicator and trades in an inverse fashion to the Dow at the moment regarding the tariff situation. A decisive push above the round 1700 could would be a welcome site for bulls and negate the negative candlesticks.
The VIX recorded a spinning top candle, similar to the 6/7 session, which often signals an end or at least exhaustion in the prevailing trend. It has lost ground 6 of the last 7 days and still sits below its 200 day SMA after the bearish death cross Monday. It certainly seems like a bounce here is at least plausible and it is higher by almost 14% thus far in 2018. Perhaps the sleeping giant has be awakened.
One day after looking frail the utilities and staples were the best performers of the major averages as the XLU and XLP rose by 1.2 and 1% respectively. The XLU found precise support at its declining 200 day SMA Tuesday with good volume, and it must be given the benefit of the doubt even after yesterdays 3% shellacking.
The financials were the worst actors as the XLF was the only major S&P sector to lose ground. The ETF fell .3% after meeting precise resistance at its 200 day SMA. It recorded a bearish death cross today and it has now CLOSED below the 200 day SMA for 13 consecutive sessions. It is not a crime to finish below that line, but it should be reclaimed rapidly. The chart of the XLF shows wide and loose trading, hallmark bearish characteristics. The proof will be in the earnings this week.
The markets always attempt to confound the most, and is why the vast majority of traders fail. Investors fail to adjust holding on to set beliefs of how markets should trade instead of trading the market in front of them. One example could be how the retail names were hurt due to the AMZN effect, which they have since shrugged off rather nicely. Add to that that the consumer discretionary stocks have been holding their own despite a rising crude price, historically the opposite of what they would do. Below is the chart of RL and how it was presented in our Monday 7/9 Game Plan. It currently sits 12% off most recent 52 week highs, acceptable given the 30% jump during a 5 week winning streak the weeks ending between 5/11-6/8. It found support at its rising 50 day SMA where institutions will make a stand and offers god risk/reward potential here.