Late Summer Sizzle!

Late summer sizzle!  That was the name of the game for many stocks yesterday as ebbing trade fears fueled a rally.  No specific progress on talks was to be found but the fact that the latest round of tariffs and taxes from both sides appear to be less than expected.  My regular readers should not be surprised that yesterday’s real winner was the Dow Jones Industrial Average, which continued its breakout from Tuesday’s session.  Throughout the late spring and summer, the Dow sat on the sidelines watching the other major indices propel themselves to new highs as it was held back by trade fears.  Remember that the Dow represents large cap, multinational corporations which represent, as the name implies, the industrial economy.  The Dow has been struggling to break out of a range that was bound by a Fibonacci support line and a resistance line at 26167 (see horizontal blue lines on the top panel of chart 6 in my attached daily chartbook).  You will note on the chart that after several failed attempts at closing above that line, the index finally logged a solid close above on Tuesday.  This was a very positive technical signal and yesterday’s extension fits the theory to a tee.  That said, a run for a new high is likely in the upcoming sessions, barring any new twists or tweets.  In contrast to the Dow’s performance, my regular readers should not be surprised that the more speculative NASDAQ 100 and Russell 2000 indices sat out for yesterday’s move.  Recall that the NASDAQ has been a real leader for market growth this year and it is still up around 17% year to date compared to the S&P500, which is up only 8%.  Yesterday’s real news was in bonds as 10 year yields not only managed to stay above 3% but, in fact, managed to log a rally trading as high as 3.09% but ultimately pulling back for a close around 3.06%.  First of all, if you haven’t read yesterday’s geek-out Wednesday in which I geeked-out on yields to maturity, I suggest you go back and read it.  I am not suggesting this for any other reason other than the fact that interest rates and bonds are going to be a real factor going forward after being on a ten year sabbatical while stocks barreled to new high after new high.  The move made many paupers into princes swelling retirement accounts beyond expectations.  The ongoing challenge for wealth managers and portfolio managers is to shift those mostly equity accounts back into more diversified portfolios, which include more bonds in order to prepare for retirement, insulate from recession, and bring risk levels back into suitable levels.  Yes, even institutional investors are keeping a sharp eye on bond yields as they relate to equity holdings.

Today, we will get a regional business outlook from the Philadelphia Fed, which is expected to come in at 18.0 after last month’s 11.9.  At 10:00 AM EST, the conference board will release its Leading Index and it is expected to show an increase of +0.5% versus last month’s +0.6% increase.  This number can certainly be a market mover if it delivers an outlier.  Later in the day, we will get some more data on housing with Existing Home Sales.  That number is expected to show a +0.4% increase month over month.  Housing numbers don’t typically move the market, but they are gaining importance as rates rise and economists look for the first effects of higher rates.  Traders will scour the tapes for any new trade news, a few solid economic releases, and some interesting technical moves in bonds and the darling-of-the-week-Dow.

daily chartbook 2018-09-20