Trading Places with Tom Bowley

Consumer Stocks Look To Lead The Bull Market Into 2018

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Market Recap for Tuesday, December 12, 2017

It was mixed and bifurcated action on Tuesday.  The Dow Jones and S&P 500 continued their assault on the record books, but the NASDAQ and Russell 2000 both paused and pulled back.  With the 10 year treasury yield ($TNX) moving back above 2.40% ahead of today's FOMC announcement, financials (XLF, +1.00%) enjoyed a very nice day, while utilities (XLU, -1.71%) posted big losses and tested its 50 day SMA for the first time in nearly two months:


The good news here is that its up channel remains perfectly intact as money simply rotates away from this defensive group and moves into more aggressive areas of the market.

Banks ($DJUSBK) performed very well on Tuesday and remain in a very solid pattern heading into today's FOMC announcement:

We could see added volatility in this group with a Fed announcement on deck so beware.  To the downside, I believe there's excellent support between 455 (price support) and 459 (20 day EMA).  So long as that level holds, I'd remain quite bullish U.S. banks.

Pre-Market Action

Futures this morning are a bit stronger on the NASDAQ as that index tries to make up for recent lost ground.  Dow Jones futures are up 14 points at last check, while NASDAQ futures are up 21 points.

In Asia overnight, the Hang Seng Index ($HSI) shot higher by 428 points, or 1.49%.  European markets are mixed.

Current Outlook

The XLY:XLP ratio continues to consolidate in a bullish symmetrical triangle pattern.  A breakout to the upside would be a clear bullish sign, suggesting that traders want the added risk of consumer discretionary stocks (XLP), as opposed to the more stable consumer staples stocks (XLP).  I'd like to see this ratio strengthen into year end and into 2018 to support the current S&P 500 advance.  Here's the current pattern:

Ultimately, I want to see that 1.76 relative resistance line cleared.

Sector/Industry Watch

Financials led the charge on Tuesday and, with retails (XRT) soaring the past few weeks, it appears that retail REITs ($DJUSRL) are beginning to hit their stride with a 1.96% gain yesterday as the group approaches significant overhead price resistance:

The group has been mostly mired in a trading range from 100-109 the past several months so that will be the first key test.  Above that, a major intermediate-term resistance is approximately 112.

Historical Tendencies

Wednesdays have been the best calendar day of the week for the S&P 500 since 1950.  While the S&P 500 has produced average annual returns in the 9% neighborhood over that span, Wednesdays have produced annualized returns more than double that amount.  Hump Day is a bullish day on Wall Street.

Key Earnings Reports

(reports after close, estimate provided):

NDSN:  1.32

Key Economic Reports

November CPI released at 8:30am EST:  +0.4% (actual) vs. +0.4% (estimate)

November Core CPI released at 8:30am EST:  +0.2% (actual) vs. +0.2% (estimate)

FOMC policy statement at 2pm EST

Happy trading!

Tom

Tom Bowley
About the author: co-founded Invested Central and served as the site's Chief Market Strategist for more than 10 years. His unique trading style combines both his fundamental and technical strategies to systematically manage risk while trading. A regular contributor to StockCharts.com's bi-weekly ChartWatchers newsletter since 2006, Tom's role at StockCharts has expanded significantly since he joined the company as a full-time Senior Technical Analyst in March of 2015. Learn More
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