Already in the first trading hour yesterday, the first shallow price correction on the large indexes were bought up, the S&P 500 succeeding in recording a higher high! Of late, the market movement has clearly shown a penchant for individual stock traders and speculative movement in sectors like biotech. Yesterday, we started seeing the large indexes taking the lead again, and a preference for the top tech companies: FAANG: FB, AMZN, AAPL, NFLX, and GOOGL.
The Russell 2000 ended the day up 0.6%, racking up another historic high, to boot, at the 1,639.04 point level, the small-cap index’s 4th consecutive high. The Russell has also seen gains on 12 of the last 15 trading days, a truly impressive stat. At the same time, the large indexes succeeding in overtaking it yesterday, the blue-chip Dow up 1.21% at the closing bell.
The market, yesterday, more than anything else, got a boost after the trade war between the U.S. and China was “put on hold,” in the words of Treasury Secretary, Mnuchin. With that said, the movement on the large indexes lacked stamina. Rather than the strong opening gap developing into a Gap & Go pattern, it morphed into a Gap & Hold pattern, few chasing prices higher after the strong opening. Among market players, there wasn’t a feeling that the large indexes would slip through their hands.
The NASDAQ continued to lag behind the rest of the indexes, money continuing to chase after energy and small-cap stocks. Some of the large stocks in the market behaved nicely, which helped the Dow perform nicely on the day, but tech stocks didn’t see that phenomenon, as some investors had hoped.
The conditions are ripe for continuity in the upward movement on the large indexes but the Russell 2000 (IWM) has now become stretched from above, some of the speculative stocks seeing more than their fair share of volatility.
On the fundamental landscape, the earnings season is looking better and better, now with 93% of S&P 500 companies already having reported their Q1 numbers. All-in-all, 78% of reporting companies have outstripped the market’s consensus, the highest success rate in more than a decade!
Reporting companies have succeeded in outstripping earnings forecasts by an average margin of 7.5%, the tech sector outperforming all other sectors with earnings growth of 33.2%, in contrast with the earlier growth forecast of 22%. Sales are also strong, 77% of companies beating their sales forecasts.
The technical picture remains encouraging for the bulls, the 3 large indexes seeming well-positioned and on track to put behind them the last 3 months of ongoing corrections. The Dow Jones, the S&P 500 and the NASDAQ are all trading above their 50 and 200-period EMAs, the Russell 2000, day in and day out, logging new historic highs!
In summary: the bears have very quickly lost faith that the last correction was more than a blip in the overarching bull market. The bulls have the upper hand, having succeeding in notching off a few key levels yesterday; with that said, even they are not sure that they’ll be here to stay for the duration.
Tuesday: Today’s Economic Calendar will be scant to say the least and traders will primarily focus on a number of interesting earnings releases. The season is winding down, but there are still a few heavy hitters that will command attention. Be primed today for these numbers before the opening bell: TJX, TOL, KSS, AAP. After closing, keep your eyes set for: URBN, INTU, CTRP, and HPE.
Have a great trading day!
Today’s Picks – Day Trading!