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Morning Commentary

Emotional Shift

By Charles Payne, CEO & Principal Analyst
5/10/2018 9:21 AM
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On Wednesday, the tenure of the rally firmed up as market breadth continues to become decidedly more bullish. I like that new highs are surging, but advancing volume, almost doubled declining volume for the NYSE, and the NASDAQ also points to the emotional shift to the fear of missing the bounce.

Market Breadth

NYSE

  • Advancers 1,649 / Decliners 1,118
  • New Highs 152 / New Lows 59

NASDAQ

  • Advancers 1,764 / Decliners 1,105
  • New Highs 177 / New Lows 69

Yesterday, it was the energy sector that got help initially from America pulling out of the Iranian nuclear deal and news of a massive decline in crude inventory. 

S&P 500 Index

+0.97%

Consumer Discretionary (XLY)

 

+0.37%

Consumer Staples (XLP)

 

+0.14%

Energy (XLE)

 

+2.04%

Financials (XLF)

 

+1.48%

Health Care (XLV)

 

+0.59%

Industrials (XLI)

 

+1.08%

Materials (XLB)

 

+1.44%

Real Estate (XLRE)

 

+0.77%

Technology (XLK)

 

+1.23%

Utilities (XLU)

-0.70%

 
 

Bullish Signs

It’s the kind of market that you can root for because it’s exhibiting true grit and getting help beyond only those glamour technology names. There are several bullish signs seen during this 5-day stock market winning streak:

Inflection

Last Tuesday, the market arrested a late pullback to rally into the close that saw the Dow Jones Industrial Average finish the session 219 points higher than its intraday low point. Looking back, I’m beginning to wonder if that was an inflection point.

Historically, major turns in the market don’t happen with much fanfare. The market begins to trade higher even as fear remains omnipresent, all the while the market is marching higher. There are no longer huge swoons into the close.

Typically, the stealth rally engenders a broader investor confidence, and suddenly, the crowd yells “stock market rally!” 

Resolve

Last week saw the market an even more impressive intraday reversal each day into Friday.  Consequentially, we saw the formation of a reverse head-and-shoulders chart formation, which is more often than not very bullish.

In addition to its inflection and resolve, major indices are closing above trend lines in the process snapping the pattern of lower highs, which is a buy signal.

Boring

Over the past five trading sessions, technology has regained its swagger even if it’s been somewhat uneven. Apple (AAPL) has been the big mover in the sector, but semiconductors have lagged but came on strong yesterday - the hottest sectors after tech:

Industrials (+3.87%) powered yesterday by rails operating in the eastern portion of the United States.  Norfolk Southern (NSC) and CSX Corp (CSX) continue to see strong weekly carload gains.

Financials (+3.25%) have been led by non-bank companies such as MSCI Inc (MSCI) and Moody’s Corp (MCO), but money center banks seem poised to take off.

Materials (+2.82) have gotten a nice bounce from building material names; Vulcan (VMC) and Martin Marietta (MLM) and chemical makers; Eastman (EMN) and DuPont (DD).

Fear

The lack of fear in the market was underscored by the continued decline in the utility sector, and the plaguing CBOE Volatility (VIX) Index closed the session at its lowest point since February 1st.  

Today’s Session

Initial claims were unchanged for the week ending May 5, at 211,000.  A better gauge, the 4-week moving average, decreased by 5,500 to 216,600.  

Continuing claims increased by 30,000 to 1,790,000 and the 4-week moving average for continuing claims decreased 22,000 to 1,812,500, which is the lowest level for this average since December 29, 1973, when it was 1,784,250.  All the data continues to point to a tightening labor market.

The Bureau of Labor Statistics reported the Consumer Price Index (CPI) for April increased 0.2% compared to a decrease of 0.1% in March.  On a trailing twelve-month basis, the index rose 2.5%. 

Core CPI, ex food and energy, rose 0.1% for April compared to 0.2% in March.  On a twelve-month basis, the index rose 2.1%. 

Highlights of component percentage changes:

·         Food index increased 1.4%

·         Energy index rose 7.9%

·         New vehicles declined 1.6%

·         Used cars and trucks declined 0.9%

·         Apparel increased 0.8%

·         Transportation services rose 4.1%

·         Shelter increased 3.4%

·         Medical care services rose 2.2%

The numbers indicate inflation remains in check.  Transportation services have been on the rise and will have to be watched closely.

This new rally appears to have legs as the futures are pointing to another positive open. 


 

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