{"id":39657,"date":"2017-06-09T01:22:06","date_gmt":"2017-06-09T08:22:06","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=39657"},"modified":"2017-06-09T01:56:18","modified_gmt":"2017-06-09T08:56:18","slug":"t2108-update-170608","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2017\/06\/09\/t2108-update-170608\/","title":{"rendered":"Above the 40 (June 8, 2017) – The Market’s Bullish Push Through Thursday’s Trifecta"},"content":{"rendered":"

AT40<\/strong> = 52.1% of stocks are trading above their respective 40-day moving averages (DMAs)
\nAT200<\/strong> = 55.4% of stocks are trading above their respective 200DMAs
\nVIX<\/strong> = 10.2 (volatility index)
\nShort-term Trading Call<\/strong>: cautiously bullish<\/p>\n

Commentary<\/strong>
\nOne out of three.<\/p>\n

The last event of Thursday’s Trifecta<\/a> had the only notable impact on financial markets. With exit polls tabulated, news arrived that the Tories in the U.K. will not have a majority in Parliament<\/a> although they will be the largest of the parties. The British pound (FXB) immediately sold off on the news. Against the dollar (GBP\/USD), the pound broke through uptrending support at the 50-day moving average (DMA) that had held since the last pullback. Against the yen (GBP\/JPY), the pound broke through 200DMA support but bounced back. The move against the euro (EUR\/GBP) did not generate much of technical significance as upper resistance seems to be holding firm.<\/p>\n


\n
\"GBP\/USD<\/a>
GBP\/USD broke down below 50DMA support and left behind what looks like a topping pattern (almost like a head and shoulders)<\/figcaption><\/figure><\/p>\n
\"GBP\/JPY<\/a>
GBP\/JPY has been in decline for almost a month. Previous breaks of 200DMA support have been short-lived. Is this breakdown the one that sticks?<\/figcaption><\/figure>\n

\"EUR\/GBP<\/a>
EUR\/GBP is only distinctive in that it stopped cold at resistance form previous peaks. Will a year-long trading range stay largely intact?<\/figcaption><\/figure>
\n<\/center><\/p>\n

Prime Minister Theresa May called the election in the hope that she could parlay a strong showing into a stronger negotiating position with the European Union over terms of Brexit that she would control. Now that May’s gambit has failed, the pound will likely, over time, erase all its gains from the day May surprised markets with the call for elections (April 18th). Now markets must once again take seriously the prospect of political uncertainty over Brexit. Yet, it is instructive to note how the market’s interpretation of Brexit has evolved. When voters approved Brexit, the pound practically crashed on fears that Brexit would ruin the UK economy. With the economy performing much better than initially expected, financial markets have tended to interpret May’s “hard Brexit” approach (a complete and clean extrication from European Union rules and regulations) as a positive. The market now wavers on the prospect that the UK could still give in to some EU mandates. At a minimum, the return of uncertainty will make the pound once again particularly sensitive to daily Brexit headlines. First off, will Theresa May be forced to resign?<\/p>\n

For now, I imagine that the pound will stabilize going into European trading and perhaps even mount a substantial relief rally going into U.S. trading. I am preparing to fade such a rally.<\/p>\n

Stateside, the S&P 500 (SPY) bid its time for the day, idling between the highs and the lows of the day. The political drama<\/a> of former FBI Director James Comey’s Congressional testimony barely registered on the general stock market. Indeed, under the covers, bullish waves kissed the shores all day. For example, the NASDAQ (QQQ) closed at another all-time high. The Financial Select Sector SPDR ETF (XLF) rallied for an impressive 1.2% gain that closed the ETF above its 50DMA. The small breakout briefly took XLF above February’s breakout line and brought XLF much closer to the edge of a very bullish invalidation of the on-going head and shoulders pattern.<\/p>\n


\n
\"The<\/a>
The S&P 500 (SPY) was generally unfazed by the Thursday Trifecta<\/figcaption><\/figure><\/p>\n
\"The<\/a>
The NASDAQ (QQQ) quietly crept to another all-time high.<\/figcaption><\/figure>\n

\"The<\/a>
The Financial Select Sector SPDR ETF (XLF) made a bullish move to invalidate its head and shoulders topping pattern.<\/figcaption><\/figure>
\n<\/center><\/p>\n

I continue to watch financials closely. Today’s move was attributed to a House vote to roll back most of Dodd-Frank regulation<\/a> of the financial industry, but it seems unlikely the Senate will go along with this vote. So for now a technical review suffices. A clean breakout above the right shoulder of the H&S pattern will likely motivate me to upgrade my short-term trading call on the entire market from cautiously bullish to bullish. A lot of the action may hinge on the market’s response going into and exiting the U.S. Federal Reserve’s pronouncement on monetary policy next week (June 14th<\/a>).<\/p>\n

The financials were likely a big part of the reason that AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), soared by 5 percentage points. At the high of the day, AT40 gained 7 percentage points. This near bullish divergence with the flat S&P 500 was significant; it paved the way for me to think incrementally more positively about the market’s underlying foundation.<\/p>\n

The volatility index provided the final word on market sentiment. The VIX gapped down at the open and only traded in the green for brief spurts shortly after the open and near the close. Clearly, the market was largely satisfied with the day’s activities.<\/p>\n


\n
\"The<\/a>
The volatility index, the VIX, swooned to start the day, rallied off its lows, but still failed to register a gain on the day.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Beyond the indices and ETFs, three stock-specific, mostly bullish themes caught most of my attention on the day: steel, retail (apparel), and autos.<\/p>\n

Steel<\/strong>
\nOn May 31, 2017, Peter Najarian of Najarian Family Office (also a host\/guest on CNBC’s Fast Money) appeared on Nightly Business Report<\/a> on a new segment called “Investor’s Edge” to discuss his method for making money by tracking the trades of big institutional investors. His commentary on steel was particularly noteworthy:<\/p>\n

“I own both of these, U.S. Steel and AK Steel. U.S. Steel is symbol X, AK Steel is AKS. And both of these have been seeing some decent money flow after a big selloff.<\/p>\n

I mean, they were betting on the infrastructure spending that President Trump talked about. It didn’t happen. They came all the way back down to where they were before the election. And now, people are betting maybe something happens in the second half of the year, and they want to get in for the last month of the second quarter.”<\/p><\/blockquote>\n

While I am not interested here in betting on Trump’s promises for the future, I am<\/strong> interested in following market sentiment. Today, U.S. Steel (X) and other steel-related stocks soared on more tariff news. With U.S. Steel rallying well above its upper-Bollinger Band (BB), I decided to lock in profits. Najarian claims that the steel trade is a second half story so this trade should have room to run. I just do not want to sit still in steel longer than needed.<\/p>\n


\n
\"U.S.<\/a>
U.S. Steel (X) is starting to turn the corner after a disastrous April earnings report that completed a full reversal from its post-Trump gains.<\/figcaption><\/figure>
\n