Picks of the Day December 5, 2017

Has the Market Set a 2017 High?!

The Dow achieved a new historic high on Monday, banking and retail stocks rallying alongside tech stocks which lost ground. The catalyst: investors updated their security portfolios in the hope of benefitting from the expected corporate tax cut.

The S&P 500 ended down after having reached an intraday high earlier in the trading day. The tech leaning NASDAQ ended sharply off by 1.05%.

These banking stocks – JPM, BAC, WFC, and C – all jumped over 2% after the Republican-controlled Senate approved tax reform legislation over the weekend. The moment the Senate and House of Representatives crystallize and push through their final draft of the legislation, the result is likely to lead to a massive corporate tax cut from 35% to 20%.

Presumably, effectively, this would lead to a rise in stockholder dividends and a rise in stock buybacks, something that certainly makes stock valuations more reasonable and which is likely to support the stock rally.

Yesterday, investors freed up liquidity from tech stocks that had led this year’s rally. In their stead, they bought into the stocks of banks, department stores, and other companies which would seem to benefit from prospective lower tax rates.

MSFT shed 3.77%, NVDA falling 5.57% and PYPL tumbling 5.75%.

Another tailwind for banking stocks was the sweeping anticipation that the Fed will hike rates in December, making banks’ loans more profitable.

The tech sector (XLK) has soared 34% this year, maintaining its place as the market’s best-performing sector. With that said, the sector has fallen 3% since November 28, investors becoming worried yesterday about the sector’s ability to persist in rallying.

In Summary for the Day: The Dow Jones rose 0.24%, the S&P 500 shedding 0.11%. The NASDAQ tumbled 1.05%.

The S&P 500 has recorded gains of 18% year-to-date against the backdrop of the strong earnings of American firms and solid economic growth, along with the mounting expectation that the Trump administration will cut corporate taxes. The index is now traded at a 12-month forward PE of 18.2, its highest level since 2002.

Many department store chains pay high tax rates and stand to benefit from the tax cuts. Take Macy’s (M) which jumped 6.65%, and Nordstrom (JWN) which surged 3.87%.

About 7.8 billion shares traded hands on Monday, substantially above the 6.7 billion average over the last 20 trading days.

Tuesday: Investors will be anxiously following movement on the S&P 500 as it opens today after the market rallied strongly at the opening yesterday, only to take a turn for the worse, not only erasing all of the day’s gains but ending at the daily low, a sign of potential problems along the way. Yesterday was the first sign of weakness on the S&P 500.

For traders, it will be important today to see whether “correction buyers” surface and go on a shopping spree. Correction buyers, year-to-date, have prevented every significant price correction, in any shape or form. That notwithstanding, from November 28 and onward, the large tech stocks started losing momentum and now, many large tech stocks are trading beneath their 8 and 21-period EMAs. Another key technical point to hone in on is whether the ETF – the QQQ – which tracks the NASDAQ 100, succeeds in trading at or above its 50-period EMA, which is now situated just 2 points beneath yesterday’s close at the $152.71 level.

The chances that the high level yesterday on the S&P 500 of 2,665 points will also constitute the index’s 2017 high. In the event that you hedged your bets and cut your risk threshold last week, you, on the flipside, could have a sudden buying opportunity; it would have to surface quickly, though! Otherwise, indexes could suffer substantial damage.

Besides continuing to follow the tax reform legislation, investors will keep their eyes peeled on the discussions in the Senate Banking Committee and thereafter, the speech of future Fed Chair, Jerome Powell, at 10:00 N.Y. time. Other economic figures today will include international trade numbers at 8:30 and the service sector PMI index at 9:45. The ISM Supply Manager Index will be released at 10:00.

AZO, TOL, and HDS will be reporting today before the opening bell.

Today’s Hot Stocks: HDS, TOL, COUP

IPOs: None

Have a great trading day!

Today’s Picks – Day Trading!

New York Strategy Swing

Today’s Picks – Swing “New-York Strategy”

No.1 –   SFIX     

 Risk Rates: Normal – Regular size, High –Consider reducing size, Low – Consider increasing size