Trading Places with Tom Bowley

Banks, Insurance And Apple Lift Dow Jones Near 23K

Market Recap for Monday, October 16, 2017

In true bull market fashion, U.S. stocks rose once again in rather boring action.  The Dow Jones, S&P 500 and NASDAQ gained 0.37%, 0.18% and 0.28%, respectively, to each finish at all-time closing highs.  The record levels just keep printing amid extremely low volatity ($VIX) as stocks don't seem to have a care in the world.  We are now less than a week away from doing something on the S&P 500 that hasn't been done in the last 100 years.  In 1995-1996, the S&P 500 traded 241 consecutive days without a 3% pullback.  Our current streak is at 236 consecutive days.  It seems as though we're a week away from another milestone in this bull market.


An Apple (AAPL) upgrade supplied some of the ammo for Monday's advance, but the Dow Jones was also aided by a resumption of the banking group's ($DJUSBK) prior uptrend as JP Morgan Chase (JPM) jumped beautifully off of rising 20 day EMA support to close at a fresh new all-time high:

The Dow Jones also benefited from a near breakout from Travelers (TRV):

Volume accelerated, but the failure to clear closing price resistance with an RSI already above 70 could limit progress here.  In other words, the Dow Jones will likely need to rely on further rotation to clear 23,000 for first time in history today.

Pre-Market Action

The 10 year treasury yield ($TNX) is slightly higher this morning to 2.32% after rallying in the final two hours of bond trading on Monday.  A short-term rising TNX is almost always positively correlated with a rising S&P 500 as money rotates from bonds to equities during such periods.  A major yield resistance level at 2.40-2.42% awaits us.

Gold ($GOLD) is having a rough morning on speculation as to our next Fed chair.  Crude oil ($WTIC) failed to close above $52.22 per barrel on Monday, which would have represented our highest close on crude since mid-April.  It may get a second chance today as the WTIC is up slightly (0.31%) to $52.03 per barrel at last check.

With 30 minutes left to the opening bell, Dow Jones futures are slightly higher, up 23 points.

Current Outlook

Transports ($TRAN) should always be watched.  They've struggled the past two trading sessions after printing a reversing bearish engulfing candle on Friday.  That's enabled the TRAN to test its rising 20 day EMA, but I'd look for strength off this key technical moving average:

The potentially bad short-term news here is that the daily MACD did roll over on TRAN's last price high.  Therefore, additional selling could kick in if the rising 20 day EMA and price support (near 9750) fail to hold as support.  The 50 day SMA is currently at 9513 and would represent a very significant support area from an intermediate-term perspective.

Sector/Industry Watch

The Dow Jones U.S. Soft Drinks Index ($DJUSSD) is an interesting index because there's been a big difference between the performance of Coca Cola (KO) and Pepsi (PEP).  Check out the dichotomy in their charts:

While both KO and PEP have risen in October, KO has broken out to fresh new highs, while PEP is yet to even test its downtrend line.  I don't know which wins a taste test, but I do know which wins a traders' test.

Historical Tendencies

October tends to be very strong on the S&P 500 during the first half of the month, then things settle down for a week, turn ugly for a week before resuming its march higher.  Here's a breakdown of October by various timeframes (annualized returns since 1950):

October 1-15:  +16.54%
October 16-21:  +9.78%
October 22-27:  -42.18% (worst historical week of calendar year)
October 28-31:  +72.72%

Key Earnings Reports

(actual vs. estimate):

CSX:  .51 vs .51

GS:  5.02 vs 4.31

JNJ:  1.90 vs 1.80

MS:  .93 vs .81

PGR:  .30 (estimate - haven't seen actual EPS)

PLD:  .67 vs .67

UNH:  2.66 vs 2.58

(reports after close, estimate provided):

CP:  2.31

IBM:  3.28

LRCX:  3.30

Key Economic Reports

September industrial production to be released at 9:15am EST:  +0.2% (estimate)

September capacity utilization to be released at 9:15am EST:  76.2% (estimate)

October housing market index to be released at 10:00am EST:  64 (estimate)

Happy trading!

Tom

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