Courtesy of Blain.
The week that was…
Bullish action continues as the market alternates between periods of rallying with periods of quiet consolidation. This past week was a period of the latter. It was a relatively quiet week other than a bit of a selloff right at the open Thursday. Friday we saw some of the major U.S. banks report. There were a lot of Federal Reserve speakers trotted out – but markets are in more of a Trump Trance right now so most of it was ignored. Still no close on the Dow Jones Industrial Average over 20K, although that level was tickled Monday.
That said we have seen a rotation from the winners of November & December (S&P 500 + Russell 2000), into areas that lagged a bit (mostly on the NASDAQ) i.e. tech. That began late the prior week and continues this past week. Big cap “technology/momentum” stocks saw a return of traders as these names had been ignored in the first 2 months of the rally. The strong start in the NASDAQ may bode well for the year:
The Nasdaq Composite has gained 2.76% in its first five trading days of 2017, marking the gauge’s best start to a year since 2006, when it jumped 5.14%. When the Nasdaq Composite ends a year’s first five sessions with a gain, it has finished the full year in the black 73% of the time, or in 22 out of 30 years.
Fun fact: The last time the S&P 500 fell more than 1% was back on October 11th when the index dropped 1.24%. The current 64 trading day streak without a 1%+ decline is the second longest of the current bull market which began in March 2009.
The only major economic report was Friday’s December retail sales:
U.S. retail sales rose 0.6% in December, less than had been expected, while holiday sales were up a better-than-expected 4%. Excluding the large auto sector that accounts for 20% of overall retail business, sales rose a disappointing 0.2% in the final month of the year, the government reported Friday. And if gas dealers who benefited from higher prices — a heavier burden on consumers — are extracted, sales were flat.
With 2016 in the books, the transition from “mortar” to “internet” remains interesting:
Online purveyors posted a whopping 13.2% increase in sales in 2016, taking even more market share away from traditional brick-and-mortar department stores. Department stores saw a 0.6% decline in sales in December and an 8.4% drop for the full year.
Here is a 5 day “intraday” chart of the S&P 500 via Doug Short.
Who is trading of Trump tweets? According to data from Etrade: Millennials.
The week ahead…
Markets will be closed Monday for the MLK holiday. After that we launch into a few weeks of the hottest and heaviest earnings action. Market moving economic data remains sparse.
Earnings for the S&P 500 are expected to grow 3.2%, but actual earnings growth could clock in at more like 6.1% if the average analyst consensus underestimate holds true, according to John Butters, senior earnings analyst at FactSet.
It’s “difficult to forecast if this is a topping phase or a sidewise movement correction in an ongoing bullish move,” Bruce Bittles, chief investment strategist at RW Baird & Co said. “The best assumption is stocks are correcting an overbought [and] overbelieved period that would conclude when sentiment backs away from the excessive optimism seen in several investor surveys.”
Bespoke has a very handy chart of some key companies reporting next week; it is very heavily focused on financials!
Index charts:
Short term: The NASDAQ has taken the baton from the S&P 500 as a healthy rotation happens into areas that have lagged.
The Russell 2000 was the star of latter 2016, post Trump election. As money has rotated elsewhere this index has stalled.
The NYSE McClellan Oscillator still is telling us not to begin our own “wall of worry”.
Long term: Here are 5 year charts on the major indexes; for those with this sort of time frame it is going to take a lot of work to get bearish.
Charts of interest:
Biotech was hit Wednesday as Trump in his press conference said that drug companies were “getting away with murder” with respect to pricing. Interestingly the major ETF in the group, IBB, hit a resistance trendline the prior day!
That said if you were in ARIAD Pharma (ARIA) – you won this week’s biotech lottery.
ARIAD Pharmaceutical shares surged 72.8% Monday after the company announced a definitive agreement to be acquired by Japan-based Takeda Pharmaceutical Company for approximately $5.2 billion. Per the agreement, ARIAD stockholders will receive $24.00 in cash for every share they own, reflecting a premium of 75% on Friday’s closing price.
Applied Optoelectronics (AAOI) soared 31% Thursday after the maker of optical network equipment forecast earnings well above its original outlook.
Have a great week and we’ll see you back here Sunday!
