Market in breakout mode
06/11/18

Despite some retrenchment on Thursday and Friday, last week was a breakout week for US stocks: All the major indexes either hit all-time records or broke out of consolidations—or both.

The S&P 500 (SPX) shot above the top of its May trading range to its highest level since mid-March. The May 29 down day that broke the lower boundary of the SPX’s consolidation did, in fact, turn out to be at least a short-term bear trap (see last Monday’s commentary)—a “head fake” that was quickly reversed with an upside breakout and a nearly 4% gain as of Thursday’s high:

S&P 500 (SPX), 1/22/18 – 6/8/18. S&P 500 (SPX) price chart. Bear trap, range breakout.

Source: OptionsHouse


But the stock market story of the week was tech and the Nasdaq 100’s (NDX) push to new all-time highs—even though it ended the week with the smallest gain of any US index. After starting the week with a couple of record closes, the tech index hit on all cylinders on Wednesday, trading to all-time intraday and closing highs. Perhaps not surprisingly, though, the NDX then led the market lower on Thursday—the broad market’s only down day of the week—but rebounded from its lows on Friday to close flat on the day.

On second thought, maybe the Russell 2000 (RUT) was the story. After hitting record highs in all of the three previous weeks, the small-cap index notched new intraday or closing records every day except Friday last week. Even the Dow (DJIA) got into the action, breaking out above its May high, posting three consecutive higher closes above 25,000 for the first time since—wait for it—January, and putting up the week’s biggest index gain. Here’s how the US benchmarks stacked up last week:

Index comparison table for week ending June 8, 2018. S&P 500, Nasdaq 100, Russell 2000, Dow Jones Industrial Average.

Source: OptionsHouse (data)


Despite tech’s run early last week, Information Technology ended toward the bottom of the S&P 500 sector rankings. The top-performers were Telecom Services (+3.3%), Consumer Discretionary (+3.2%), and Materials (+3.9%). The worst-performing sectors were Utilities (-3.3%), Energy (+0.6%), and Information Technology (+0.8%).

Among individual stocks, Nektar Therapeutics (NKTR) started the week with a bang—the wrong kind, though. Shares plummeted almost $38 (42%) on Monday after the release of less-than-impressive clinical trial data for one of its cancer drugs.1 Juniper Networks (JNPR) bucked the Thursday-Friday tech weakness, while DowDuPont (DWDP) rallied 6.4% before pulling back to (and rebounding off) a support level on Friday.

In futures, crude oil initially extended the previous week’s slide amid US requests for OPEC to hike production by a million barrels a day.2 July WTI crude oil futures (CLN8) dropped below $65 to start the week, hitting their lowest level in almost two months. On Thursday, though, the market reversed to the upside, pushing briefly back above $66 before closing the week with a small loss. Cotton prices (CT) pulled back early in the week but rebounded to remain near six-year highs.

The week ahead: This week’s trading calendar is pretty full, with a wide range of reports scattered around Wednesday’s Federal Reserve interest rate announcement (a hike is expected) and Friday’s “quadruple witching,” when stock options, index options, stock index futures, and single-stock futures all expire. And don’t forget about the US-North Korea summit on Tuesday—unexpected developments could move the markets, if only temporarily. Here’s the rundown:

Monday: Assorted US T-note and T-bill auctions

Tuesday: FOMC Meeting begins, Consumer Price Index (CPI), NFIB Small Business Optimism Index, 30-year T-bond auction, US-North Korea meeting

Wednesday: Producer Price Index (PPI), Atlanta Fed Business Inflation Expectations, FOMC Meeting Announcement

Thursday: Retail Sales, Import and Export Prices, Business Inventories

Friday: Quadruple Witching, Industrial Production, Consumer Sentiment

In a light week of earnings, here are a few to watch:

Monday: Dave & Busters (PLAY), KMG Chemicals (KMG), Restoration Hardware (RH)

Tuesday: Casey's General (CASY), H&R Block (HRB), Pivotal Software (PVTL)

Wednesday: Bitauto Holdings (BITA), Tailored Brands (TLRD)

Thursday: Michaels Stores (MIK), Adobe Systems (ADBE), Finisar (FNSR), Jabil (JBL)

Go to the E*TRADE market calendar (logon required) for an up-to-date schedule, along with a complete list of splits, dividends, IPOs, and other market events.

One high at a time: Before the SPX thinks about reaching its all-time high of 2872.87 from January 26, it has to get past its March 13 high of 2801.90. As of Friday, it was 3.4% away from the former, and less than 1% from the latter.

 

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1 MarketWatch. Do Nektar’s disappointing clinical trial results invalidate $2 billion Bristol-Myers deal?6/5/17.

2 Bloomberg. U.S. Asks OPEC for 1 Million Barrel a Day Oil Output Hike. 6/5/18.