Trading Places with Tom Bowley

Crude Oil Plunges, Energy Crushed

Tom Bowley

Tom Bowley

Chief Market Strategist, EarningsBeats.com

Market Recap for Thursday, May 23, 2019

Energy (XLE, -3.35%) has been a relative laggard for the past 8 years, mostly due to a rising U.S. Dollar Index ($USD).  The group took another big blow yesterday as crude oil prices ($WTIC, -5.71%) tumbled and had its worst day of 2019.  It raises the possibility of another swoon back to test the lower $40s per barrel:


While many headlines blamed the trade war for the big drop yesterday - and it most definitely played a hand in it - the bigger story was the breakdown in crude oil prices.  Technically, the drop below both the 20 week EMA and 50 week SMA could fuel more selling.

Meanwhile, technology (XLK, -1.76%) suffered through another poor session as telecommunications equipment ($DJUSCT, -2.29%) gave back some of its recent gains that were led by Cisco Systems' (CSCO) earnings report.  Computer hardware ($DJUSCR, -1.85%) was also among the weak performers as Network Appliance (NTAP, -8.11%) delivered poor results and a not-so-great outlook.

Defensive groups managed to hold up fairly well with utilities (XLU, +0.86%) and real estate (XLRE, +0.49%) the only two sectors to finish in positive territory.  Among industry groups, the specialized consumer services ($DJUSCS, +1.11%) had a solid day after Copart (CPRT, +7.95%) delivered a solid earnings report and outlook.  Check out the Sector/Industry Watch section for more details on the DJUSCS.

Pre-Market Action

Theresa May has resigned as UK Prime Minister over the Brexit crisis, but that's had little negative impact on global markets.  China's Shanghai Composite ($SSEC) was flat overnight and I was anxious to see whether support would hold on its chart:

Last night's action isn't reflected on the above chart, but the SSEC closed up a half point to 2852.99.  So far so good.  Europe is having a solid morning thus far with the German DAX ($DAX) bouncing 90 points (+0.76%) at last check.

A big development yesterday was the 10 year treasury yield ($TNX) breaking through double bottom support at 2.36%.  And it wasn't close.  The TNX finished yesterday at 2.30%.  It was a definitive breakdown and one worth watching.

Dow Jones futures appear to be taking a cue from Europe as they're higher by 111 points as we approach today's open.

Current Outlook

On an intraday basis, the S&P 500's bounce in the final hour on Thursday was kind of a big deal.  After nearing a short-term support level, buyers returned.  That beat the heck out of the alternative, which would have been an emotional breakdown to encourage more sellers this morning.  Instead, the late-day buying has resulted in solid futures this morning.  Here was the rally yesterday after 3pm EST:

Those two lines - support and resistance - are what I'm watching right now.  If the S&P 500 dips back below 2800, that could be a big problem with the Volatility Index ($VIX) on the rise again, so be careful.

The good news is that today's close marks the beginning of a very strong seasonal period for the S&P 500.  See the Historical Tendencies section below for more details there.

Sector/Industry Watch

Specialized consumer services ($DJUSCS) has been a relative leader since the December bottom and it's been quite a run - so much so that the group even managed to breakout on both an absolute basis and relative basis yesterday, despite the overwhelming selling that took place in our major indices:

Copart (CPRT) and MercadoLibre (MELI) are two strong relative performers in the group worth considering.

Historical Tendencies

I've posted on a couple occasions about the upcoming seasonal strength on the NASDAQ and Russell 2000.  It most definitely applies to the S&P 500 as well.  Since 1950, the May 26th through June 5th period has produced annualized returns of +29.12%.  While this annualized return falls well short of the returns of the NASDAQ and Russell 2000, it's nonetheless triple the 9% that the S&P 500 has enjoyed throughout the year over the past seven decades.

Key Earnings Reports

(actual vs. estimate):

FL:  1.53 vs 1.61

Key Economic Reports

April durable goods released at 8:30am EST:  -2.1% (actual) vs. -2.2% (estimate)

April durable goods ex-transports released at 8:30am EST:  +0.0% (actual) vs. -0.1% (estimate)

Happy trading!

Tom

Tom Bowley
About the author: is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market. Learn More