It was a quiet week aside from Tuesday which saw a nearly 1% jump in the S&P 500 – but not necessarily a win for the bulls (yet). Much like on an upward move you want to see periods of consolidation to rest and consolidate; we are in a near term downward move and one could say this rally was a bit of a rest and consolidation. Bulls still have work to do. Monday and Friday showed mild gains, while Wednesday and Thursday showed mild losses; almost all of the week’s movement was based on Tuesday. Tuesday’s rally seemed to be linked to a Politico report that President Donald Trump’s top aides and congressional leaders are making progress on shaping a tax-reform plan. The central bank speeches late in the week were non events. The S&P 500 added 0.7% and the NASDAQ 0.8%.
Sam Stovall is leaning bearish:
“Even though the S&P 500 is currently only 2.2% below its Aug. 7 all-time high, the market’s current technical action points to the possibility of a decline of deeper proportions,” said Sam Stovall, chief investment strategist at CFRA. Stovall said the erosion in price momentum of the cyclical sectors, such as technology and financials that had been leading the recent rally, have been adding to the downbeat sentiment.
The market doesn’t “care” about this sort of thing until a selloff happens but just as an FYI to our readership:
Forward multiple or price-to-earnings ratio, a measure of equity values, of the S&P 500 are at 17.4 times, representing the highest level in more than a decade, according to FactSet.
Among reasons for caution aside from some weakness in the index charts is the transports below their 200 day moving average for the first time since last summer.
Interesting positive action in copper and emerging markets however!
Economic news was sparse (durable goods) and not of interest to markets.
Here is the 5 day weekly “intraday” chart of the S&P 500 .. via Jill Mislinski.
Here are the 25 websites with the most financially well off people reading! We were (of course) #1 overall but this survey only looked at the top 500 sites by traffic and we are (of course) #501. So close! I do love that #23 is on the list.
The week ahead…
First week of the month is always the interesting one – we get the second read of 2nd quarter GDP (2.7% expected up from 2.6% on the first revision) and August employment data (+183,000 expected. 4.3% unemployment rate). The Institute of Supply Management’s manufacturing report Friday is expected to have edged up to 56.5 per cent in August, from 56.3 per cent the previous month. A reading above 50 percent indicates that the manufacturing economy is generally expanding.
President Trump will be doing a speech about tax reform this week.
The debt ceiling will start to cause some fuss but D.C. ALWAYS raises the debt ceiling – despite a lot of rhetoric. But the rhetoric can spook some people in the near term.
Short term: Near term downtrends in both major indexes and both a tad below their 50 day moving averages. Is this consolidation before a new leg down or is the market ready to zap the bears for the upteempth time since November???
The Russell 2000 remains below the 200 day moving average – a much more serious blow than being below the 50 day moving average.
The NYSE McClellan Oscillator went back positive Friday but 1 day is not enough for us to change our stance. If we get 4-5 days of positive readings we’ll shift.
Long term: We are skipping the 5 year charts here for a bit as we have some interesting charts on about a 2.5 year chart – you can see the major breakout since election night. Both indexes are chopping around on uptrend lines and even a bit below them. So let’s keep this view for a few weeks and see how it plays out.
Charts of interest / Big Movers:
Herbalife (HLF) gained nearly 10% Monday after announcing a self-tender offer and confirming it recently held talks on a going-private transaction. The health products distributor said it has commenced a modified Dutch auction self-tender offer to buy for cash up to $600 million of its own shares.
Also Monday, Tenet Healthcare (THC) closed up nearly 15% after two board members from it’s largest shareholder resigned on Friday. An interesting battle going on within this company.
A rally in a brick & mortar retailer!! Tuesday DSW (DSW) jumped nearly 18% for their best single-session climb since going public in 2005, on solid quarterly earnings.
And another Thursday? Dollar Tree (DLTR) rallied 5.6% after the discount retailer reported better-than-expected earnings for the quarter.
This week’s winner in the biotech lottery was Adamas Pharma (ADMS) which surged 40% Friday after the U.S. Food and Drug Administration late Thursday approved the company’s Gocovri treatment of dyskinesia, or abnormal or involuntary movements associated with Parkinson’s disease.
Have a great week and we’ll see you back here Sunday!