Trading Places with Tom Bowley

Consumer Stocks Roll; NASDAQ Breaks 7600

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Market Recap for Monday, June 4, 2018

Consumer stocks - discretionary (XLY, +1.12%) and staples (XLP, +0.83%) - led Wall Street higher on Monday, especially the NASDAQ, which closed above 7600 for the first time in its history.  The highest candle body on the NASDAQ, however, is at the March 13th open, which was 7627.52.  That's the bulls next target.  Technology (XLK, +0.80%) also was strong, particularly internet stocks ($DJUSNS) as they've now jumped more than 100 points since their 20 day EMA test one week ago:


The DJUSNS is now moving into overbought territory with its RSI piercing 70 and it's nearing overhead price resistance close to 1765.  This would be a convenient area to see a little rotation to other areas of technology and the overall market.  We'll see.

Another blazing hot part of the market is in the apparel retailers space ($DJUSRA).  It was another huge day in this group as they gained 2.74%.  After consolidating in rectangular fashion for a couple months, the DJUSRA has soared and also is quite overbought:

The risk of jumping in now is high as the DJUSRA is significantly above its 20 day EMA.  At some point, we'll get a pullback and that'll be the time to look for stocks within this group for solid reward to risk entries.

Pre-Market Action

Money is rotating into bonds a bit this morning with the 10 year treasury yield ($TNX) down a couple basis points to 2.91%.  Crude oil prices ($WTIC) continue their downward trek, falling to $64.50 per barrel at last check.

Asian markets were fractionally higher overnight, while European markets are mixed this morning.  It's worth noting, however, that the German DAX is up 1% and continues moving higher after a successful test of support at 12600.

Dow Jones futures are up 8 points with 30 minutes left to the opening bell.

Current Outlook

Transportation stocks ($TRAN) have been strong and I've discussed them a few times recently, but it's worth noting that their short-term struggle relates to two key issues.  First, the truckers ($DJUSTK) became very overbought and hit overhead price resistance and are backing off.  Second, there's a negative divergence that's developed on railroads ($DJUSRR).  Check it out:

Let me be clear.  I'm very bullish U.S. equities.  However, we could see rotation or a shift from transportation stocks to other areas of the market on a short-term basis based on looking at these two key transport areas.

Sector/Industry Watch

Commercial vehicles & trucks ($DJUSHR) might be an area to consider for a short-term rally.  It's been the worst industry group within industrials over the past week and has pulled back into a range where the 20 day EMA, 50 day SMA and 200 day SMA have all come together.  There also appears to be a bottoming reverse head & shoulders in play here:

I like the upsloping neckline and potential upsloping shoulders.  I would not be surprised to see money rotate back into the group here.  I'd be less comfortable if the group were to close back beneath 1985-1990.

Historical Tendencies

I discussed above the current strength in apparel retailers ($DJUSRA).  Seasonally, things get interesting.  Over the past two decades, the DJUSRA has risen during the month of June only 32% of the time and the group has averaged losing 1.5% during the month.  However, the DJUSRA has risen 4 of the past 5 Junes and averaged gaining 1%.  Despite the overall seasonal bearishness, technical conditions look strong right now, other than the fact that the group is simply overbought.

Key Earnings Reports

(actual vs. estimate):

GIII:  .22 vs (.04)

HDS:  .70 vs .63

NAV:  .55 vs .28

(reports after close, estimate provided):

GWRE:  (.01)

OLLI:  .36

Key Economic Reports

May PMI services index to be released at 9:45am EST:  55.7 (estimate)

May ISM non-manufacturing index to be released at 10:00am EST:  58.0 (estimate)

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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