Daily Market Report - Tuesday, September 17, 2019

Executive Market Summary

• Major indices opened lower and trading in fairly narrow range again
• Yesterday's leader, energy (XLE, -1.43%), is today's laggard; crude oil down 6%
• Defensive stocks (XLRE, XLP, XLU) leading as Fed meets
• Slight rotation to treasuries as 10 year treasury yield ($TNX) dips to 1.83%
• Industrial production, capacity utilization, and housing market index all top expectations
• Restaurants & bars ($DJUSRU) and renewable energy ($DWCREE) posting solid gains
• Gold ($GOLD) relatively flat, but gold mining ($DJUSPM) very strong

Market Overview

The biggest news this morning is once again crude oil ($WTIC), which is lower by more than 6% to $59 per barrel. Why? Well, reports have surfaced saying that Saudi Arabia's oil output will return to normal quicker than was originally anticipated. That's sent many energy shares tumbling after a huge day on Monday. Here's a long-term chart that I posted in my Trading Places blog at StockCharts.com earlier this morning:

Crude oil ($WTIC) remains in an uptrend and really the long-term picture hasn't been affected at all - either by the huge spike yesterday or the 6% drop today. The overall uptrend remains in play with $65-$66 price per barrel remaining the overhead obstacle.

The Fed kicks off another 2 day meeting today (Oh boy!) with traders wondering whether they'll spark yet another stock market tumble. If they do manage to convince bond and stock traders that they're more dovish, that would likely hurt the financials (XLF) the most as that group has gained ground in recent days on the back of a rising TNX. A dovish Fed would probably end that move higher on the TNX. And the TNX is in a vulnerable position any way after the recent spike in yields:

The recent positive divergence has played out as we've now seen a PPO centerline "reset" and a 50 day SMA test. The TNX could go higher from here, but the momentum issues that we had previously have now been resolved. Where the TNX goes from here will likely determine which part of the stock market to favor in Q4.

Sector/Industry Focus

A strong housing market index report was released at 10am EST this morning and home construction stocks ($DJUSHB) are among the better performers today. I've discussed the bullishness on a longer-term weekly chart with the DJUSHB remaining above its rising 20 week EMA. Now let's zero in on a 60 minute chart that spans the past two months:

There's a very well-developed channel in play here that suggests recent lows near 880 are likely to hold. One of our current portfolio stocks, Meritage Homes Corp (MTH) has been benefiting from the outperformance of home construction stocks and I expect its recent relative strength to continue:

Strong Earnings ChartList

High volume stocks, trading more than .40x normal daily volume at 10:15am EST - 6 of 329 stocks

Here's a table showing these results this morning:

DR Horton (DHI) is in that home construction space that I mentioned above and it's currently bouncing off its 20 day EMA. 48.00 should be solid price support on any further selling/consolidation, but it's beginning to show leadership again so I think we'll see another breakout here sooner rather than later:

Funko, Inc. (FNKO) announced those words that short-term traders do not like to hear. "Secondary offering". The stock looks really good, however, so after we wade through this secondary offering mess, I'd look for a return to new highs on FNKO:

Closing price support is 25.28. Today there's very heavy volume, so let's see where FNKO closes. A close back above 25.28 would be bullish in my view, while a close beneath opens up further downside possibilities. FNKO has been a very strong stock in a very weak group (clothing & accessories - $DJUSCF).

Current Alerts

It's September and the S&P 500 is near an all-time high. There's plenty of overhead price resistance and also plenty of historical precedence why it makes sense to keep powder dry. The Fed is meeting today and tomorrow and three times since December 2018, we've seen huge market selloffs on the heels of Fed meetings. The stock market clearly wants the Fed to turn more dovish so we'll get the latest reaction later this week and into next week of tomorrow's policy statement. The recent wholesale selling of market leaders, in my opinion, was simply the unwillingness of traders to hold onto those growth stocks with the Fed having such a horrible track record in terms of stock market reaction.

Based on all of this, we're simply looking for a stock here or there to trade with fairly tight stops in play. Right now, we have just one active alert - Career Education Corp (CECO) - entering in an area of recent support with a tight stop of a close beneath 19.00. It's currently trading beneath that level as you can see below:

Not only is CECO violating recent absolute price support between 19.20 and 19.85, it's also testing key relative price support levels, as illustrated by those horizontal lines in the bottom three panels. If 19.00 fails to hold, I'd expect to see a trip lower to test gap support created from the May earnings gap higher. That comes in just below 18.00.

Today's Movers

Schlumberger Ltd (SLB) has been trending lower for a long, long time. It did have a solid day yesterday, however, as crude oil prices ($WTIC) and energy (XLE) soared. The longer-term trend is clearly lower, though, and the following chart points out the rather obvious:

It's been a year since SLB had a weekly close above its 50 week SMA. We're not only testing that critical moving average now, but we're also testing the July price resistance in the 40.00-41.00 area. That black candle this week, should it hold up, also paints a rather ominous picture down the road. The bottom line for me is that I wouldn't consider owning SLB until it can begin to show more than just short-term strength. I'd need to first see a weekly close above that 40-41 area.

Earnings Reports

This is a very light week for earnings, but there are several to watch:

Tuesday, September 17:

ADBE, FDX, CHWY, CBRL, APOG

Wednesday, September 18:

GIS, MLHR

Thursday, September 19:

DRI, SCS, SCHL

Friday, September 20:

None

Economic Reports

FOMC meeting begins

August industrial production released at 9:15am EST: +0.6% (actual) vs. +0.2% (estimate)

August capacity utilization released at 9:15am EST: 77.9% (actual) vs. 77.6% (estimate)

September housing market index released at 10:00am EST: 68 (actual) vs. 66 (estimate)

Happy trading!

Tom