Daily Market Report - Thursday, September 19, 2019
Executive Market Summary
- Major indices rally yesterday afternoon after Fed policy statement
- Aggressive areas lead that market rally
- Thursday action is continuing the afternoon rally
- Technology (XLK) is the sector leader with software ($DJUSSW) resuming leadership
- Microsoft (MSFT) best Dow performer
- 10 year treasury yield ($TNX) mostly flat and stabilizing
Major Market Overview
There's been a lot written about the mixed message of the Fed since yesterday's policy statement at 2pm EST. I actually liked what I heard from the Fed and I haven't said that often about this Jerome Powell-led Fed. There was growing concern that the Fed might not cooperate and lower rates yesterday, but they did. One voting member actually wanted a 50 basis point reduction. In my mind, it was clear that they've become more accommodative and, in the end, that will produce much more confidence among stock traders.
I also loved what I saw in the final hour of trading yesterday. It's very typical for us to see "knee-jerk" reactions immediately after the policy statement. I think the one hour window of trading after a Fed meeting is perhaps the most dangerous of all. Many times, the initial reaction is the wrong one. Traders are manipulated by market makers and they overreact. In the final 60+ minutes yesterday, aggressive stocks ruled the day. We're seeing that carry over today as the sector leaderboard shows:
Technology (XLK) is the leader today and it also was the leader in the final 75 minutes on Wednesday. Market participants are placing their bets with new information.....and the early results suggest that the stock market will go higher.
Sector/Industry Focus
I am really beginning to love the transportation stocks ($TRAN). You might look at the last week or so and wonder why it's not moving to new highs. But check out the huge hollow candles leading to the recent test of price resistance. That's a serious sign of accumulation. Then look at the pullback to test the rising 20 day EMA. Do you see any big red candles? No. There's little sign of distribution. Instead, every gap lower is followed by more buying. Here's the chart:
If the TRAN holds 20 day EMA support (green arrow) and subsequently breaks above the price resistance illustrated, I'd become extremely bullish, believing a major stock market advance lies ahead.
Strong Earnings ChartList
Stocks setting new 52 week highs at 10:45am EST - 20 of 329 stocks
Nearly half of the list is in technology, which bodes very well, in my opinion. We want to see aggressive areas setting new highs and we're getting that today. I'm a big fan of semiconductor stocks ($DJUSSC), so let's highlight two of them off the above list:
Applied Materials (AMAT):
I love the relative strength here and yesterday's closing breakout on improving volume. From a longer-term perspective, watch the channel and major price support back in the mid-40s. So long as that holds, I favor AMAT as a solid longer-term core holding.
Teradyne (TER):
How can you not love the relative strength and fresh breakout here?
Current Alerts
Our only current alert, Career Education Corp (CECO), was stopped out yesterday, closing beneath our 19.00 stop. It didn't work out, but we wanted to maintain a fairly tight stop. If you continue to hold or are otherwise interested in the stock, I'd watch two gap support levels, both the result of prior earnings reports. First, we have the August 7th close at 18.37, the day before CECO exploded higher on very heavy volume. The second gap support would be from the May 8th close of 17.95, just prior to the May 9th explosive gap higher on CECO's highest volume day in the past year. In my opinion, 17.95 is the biggest support level on the chart. We just didn't want to watch a position lose potentially another 4-5% if it were to reach that price level. If you were stopped out, I wouldn't mind re-entry near 18.00, but do keep one thing in mind. CECO, relative to its peers, has been steadily downtrending now for a month and yesterday threatened to close at its lowest relative level since February. Therefore, if you do still own it or are looking to re-enter, I'd make absolutely no excuses if 17.95 support is lost on a closing basis.
Today's Movers
Among losers today, I believe Costco (COST) requires a 2nd look. COST broke out on very heavy volume in late-August and is now returning back to close to that support level and its 50 day SMA:
Manpower (MAN) is one to keep an eye on. The absolute and relative strength are building much more positively here, and we're also seeing improving volume trends. Take a look:
If you jump in here, you could be a little early to the party, but I do like the fact that MAN is holding its 20 day EMA now on weakness. A breakout of the bullish flag pattern, especially if accompanied by big volume, would be a huge positive for the stock.
Microsoft (MSFT), the most visible stock in the influential software group ($DJUSSW) is attempting a breakout, so we'll need to watch it into the close:
One huge positive for MSFT is it breaking out vs. its software peers. It remains a very solid core holding.
Earnings Reports
This is a very light week for earnings, but there are still a few more to watch:
Thursday, September 19:
DRI, SCS, SCHL
Friday, September 20:
None
Economic Reports
Initial jobless claims released at 8:30am EST: 208,000 (actual) vs. 215,000 (estimate)
September Philadelphia Fed Survey released at 8:30am EST: 12.0 (actual) vs. 11.0 (estimate)
August existing home sales released at 10:00am EST: 5,490,000 (actual) vs. 5,380,000 (estimate)
August leading indicators released at 10:00am EST: +0.0% (actual) vs. +0.0% (estimate)
Happy trading!
Tom