The Week Ahead

The last week was characterized by a solid bounce off of the 50 DMA which began the previous Friday and
ending up at the S&P 2800 resistance level once again. Despite the wall of worry which consists of tariff
wars, Russian election meddling, alleged FBI misdeeds, the Congressional circus investigating it all plus
the slow growing economy, stock investors shrugged and continued buying.

Whether this 50 Day Moving Average to 2800 area will be a new trading range, it will be interesting to see if the longs can keep the ball rolling or not.

The House put on a show that would make comedy writers jealous. On display were the representatives of the people making speeches, spewing venom, out-shouting one another and generally making a laughing stock of themselves. At issue was whether the FBI’s Peter Strzok was lying when he told his paramour he would “stop” the election of Mr. Trump or, as he claims, his texts to her were all in good fun and he really ignored his own inclinations and was a paragon of ethical honesty when investigating alleged election hacking. Anyone who watched the show came away amazed at what they saw and heard.

Mr. Strzok was not his own best witness as he treated the whole thing as if it was beneath him, smirking and snide in his responses, leaving one side frustrated and the other ready to give him a Purple Heart. Meanwhile the leader of the probe, Mr. Rosenstein, was indicting 12 Russians who will, no doubt, never see a day in a U.S. Federal Court, on charges they were the culprits. All very entertaining but, as usual, unpromising. Watching, one can fully understand why Congress gets marks well below that of used car salesmen in the eyes of the public.

If Goldilocks was an equity trader, she would probably have her eye on the mid-cap segment of the market right now – that is, if she was a technician. We say that because among the various market cap options, mid-caps appear to be in the sweet spot right now, from a charting perspective.

Following an impressive run up to new highs, small-caps ran into some key extension levels and, like papa bear’s porridge, appear to be just a little too hot to chase at the moment. Conversely, as we tend to favor high relative strength areas of the market, the lagging large-caps just don’t fit the bill either. They remain stuck in a trading range and well off of January’s highs. Therefore, they’re a bit too cool for our liking. Mid-caps, however, may be just right.

That’s because mid-caps, as represented by the S&P 400 Mid-Cap Index (MID), have demonstrated relative strength of late, bouncing solidly this past week back up near their all-time highs. Plus, as they have not yet broken out and extended themselves into new high ground, they appear to have fuel in their tank still to initiate such a run. And the kicker is, they have potentially formed a cup-&-handle pattern on their chart over the past 6 months.

  • Monday: CN GDP, Industrial Production, Fixed Asset Investment, Retail Sales, EU Trade Balance, US Retail Sales, Empire Manufacturing, Bank of America, Netflix earnings, US President Trump meets Russian President Putin in Finland, UK/EU negotiations on Brexit in Brussels, UK House of Commons debate on Customs Bill, EU Foreign Affairs Council discusses Iran nuclear deal
  • Tuesday: AU RBA Policy Minutes, UK Claimant Count & Average Earnings, BoE Governor Carney, US Industrial Production, Capacity Utilisation, Fed Chair Powell semi-annual testimony (Senate), API Inventories, Goldman Sachs, Johnson & Johnson, UnitedHealth earnings
  • Wednesday: UK CPI/RPI/PPI, EU CPI (F), US Building Permits, Housing Starts, Fed Chair Powell semi-annual testimony (House), DoE Inventories, Beige Book, Alcoa, American Express, eBay, Morgan Stanley earnings
  • Thursday: AU Trade Balance, Employment Change, UK Retail Sales, US Philly Fed, Weekly Jobless Claims, Microsoft, SAP earnings
  • Friday: UK PSNB, OPEC Joint Ministerial Monitoring Committee meeting, G20 meeting of finance and central bank deputies, CA CPI, Retail Sales
  • Saturday: G20 meeting of finance minister & central bank governors
Data is the new Oil EIA Weekly Petroleum Results