The major averages were a bit volatile intraday, to be expected as many traders arrived back on their desks following the holidays and the slow summer month of August. Give the benchmarks credit for bouncing off a decent double bottom just after lunchtime. Although I do not give much credence to intraday noise, it was impressive. The chatter of the weak seasonality that September brings could easily pose a threat to the indexes, but the uptrends are still solidly intact. One could easily see a pullback for the S&P 500 to its rising 50 day SMA, about 2.5% away currently, and even a retest of the round 2800 number, that could be a healthy event. If that number is broken perhaps one can begin to worry. The good news is that the last 3 months of the year tend to be the strongest. Lengthen your time horizon some.
The Russell 2000 was the worst actor today as it fell by .4%. Their have been some dubious candles recently, but again a prudent pullback toward the 1700 number which was very tough to get through would be a nice test. The bulls certainly like to see former resistance become support. The VIX showed a bearish reversal right near its 200 day SMA, a line that has been stubborn for the instrument. The upper tail was not as long as the 8/17 session, but the weeks following the move saw it fall more than 10%. Lets see if that is some foreshadowing here. The emerging markets pain continued with Brazil slipping 4.5% and the EWZ is now lower by 35% from most recent 52 week highs. Mexico in the news last week, undercut its 200 day SMA, via the EWW, and the very round 50 number. That was the level of a bull flag breakout in late July that quickly fizzled out.
Leading the way to begin the holiday shortened week Tuesday were the financials, utilities and cyclicals. For the finnies which have not garnered a whole lot of attention, give the chart credit for holding the bullish falling wedge breakout in late July which coincided with the ETF moving back above its rising 200 day SMA. Additionally it looks imminent that a bullish golden cross could occur shortly as its 50 day SMA is curling upward once again. Look for the XLF to be pulled magnetically toward the round 30 number and a potential break above a cup base trigger of 30.43 sometime in the fall. If that were to materialize that would obviously benefit the overall market.
Lagging today were the materials and healthcare groups. The XLV recorded its first three day losing streak since late June, although the 8/30-31 sessions lost a total of NINE pennies. Keep in mind on 8/30 it did register a doji candle after a nice run, which often signals exhaustion of the prevailing trend. BMRN, which I was WRONG about recently thinking it was going to successfully fill in a gap from 8/6 the session at the very round 100 number fell nearly 4% Tuesday. The 100 figure was staunch resistance dating back to the first week of 2016, until moving above the week ending 7/13. The brief move above could very well have been a bull trap. Among material names, old time favorite for many traders FCX is now lower 5 of the last 7 weeks and is 33% off most recent 52 week highs. Notice the round 20 number was a roadblock for the name this January with three weeks trading above intraweek, but no CLOSES above (no daily finishes north of 20 either).
We should all be very aware that consumer spending represents 2/3rd’s of GDP, which has been sporting 4 handles as of late. The discretionary group has done plenty of heavy lifting in the overall markets as witnessed by the performance in the XRT. Disappointments have been growing, but we did see healthy numbers from F this morning. One also has to factor in management when looking at how individual names behave. Take for instance the discount players. One has to peer no further than OLLI, up now 13 sessions in a row, or ROST and BURL both sitting just off 52 week highs. Why then is DLTR more than 30% off its most recent highs? Is inferior brass responsible for the action that produced three straight double digit losing reactions to earnings, very consistent falling between 14-15% on 8/30, 5/31 and 3/7? Who knows, but PRICE action is painting the narrative. Other plays are fighting hard to hold their breakouts, we prefer to see strong moves POST breakouts, as the best ones tend to work out right away. Below is BBY and how it was presented in our Monday 8/13 Game Plan. Since the break above the triangle trade has become wide and loose, bearish traits, but a weekly CLOSE above the round 80 number this Friday would have the bulls feeling jolly.