Poised to move?
05/29/18

Get ready for some action.

Coming off an up-and-down week accompanied by swirling geopolitical winds, the S&P 500 index (SPX) begins this short but news-filled week near the middle a tight trading range that promises to be broken with the first 1% move in either direction.

The SPX closed out last week with its lowest volatility levels since February, having formed a two-week trading range with a lower boundary around the midpoint of its January-February trading range and an upper boundary around last Tuesday’s high:

S&P 500 (SPX), 1/23/18 – 5/25/18. S&P 500 daily price chart. Locked and loaded?

Source: OptionsHouse


A one-day breakout of a trading range doesn’t mean much, but because low volatility can be followed (sooner or later) by high volatility, traders should remain vigilant.

Until Friday’s lower close, last week alternated perfectly between up and down days, and the SPX ended the week with a small gain. Tech stocks regained some momentum, though, vaulting the Nasdaq 100 (NDX) back to the head of the index class.

The market’s day-to-day moves generally tracked some of the major news stories of the week. Stocks appeared to cheer the Wednesday release of minutes from the Federal Reserve’s May 1-2 meeting indicating the central bank is inclined to let inflation run above 2% for “temporary period,” but the White House’s announcement that it was cancelling the US-North Korea summit seemed to let some of the air out of the market’s balloon on Thursday. Here’s the final tally:

Index comparison table for week ending May 25, 2018. S&P 500, Nasdaq 100, Russell 2000, Dow Jones Industrial Average.

Source: OptionsHouse (data)


There was some reshuffling among sectors last week, mostly toward the top of the rankings. The top-performing S&P 500 sectors: Utilities (+3.1%), Real Estate (+2%), and Information Technology (+1.3%). The worst-performing sectors were Energy (-4.5%), Materials, (-1.4%), and Financials (-0.4%).

Micron Technology (MU) made one of the week’s more notable moves, rallying 3.9% on Monday, 6.4% on Tuesday (after announcing a partnership with Intel), 1.6% on Wednesday, and 2.5% on Thursday. On the downside, six days after hitting a record high, Best Buy (BBY) sold off 6.7% on Thursday after releasing better-than-expected earnings but showing a dip in Q1 online sales.1

In futures, continued US dollar strength pushed June Euro FX futures (6EM8) to 1.1167, their lowest level since last July; June dollar index futures (DXM8) topped 94.00, their highest level since November. WTI crude oil futures hit new contract highs ($72.90/barrel) early last week before pulling back, closing the week with a sharp selloff after Saudi Arabia’s energy minister said OPEC and its allies were likely to increase oil output in the second half of 2018. July WTI crude oil futures (CLN8) closed Friday around $67.60, off more than 7% from the week’s high.

Looking ahead, there’s a lot of economic data packed into this holiday-shortened week, including GDP on Wednesday and the jobs report on Friday:  

Tuesday: S&P Corelogic Case-Shiller HPI, Consumer Confidence

Wednesday: ADP Employment Report, GDP, International Trade in Goods, Corporate Profits, Retail Inventories, Wholesale Inventories, Beige Book

Thursday: Personal Income and Outlays, Pending Home Sales Index

Friday: Employment Situation, PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending

There’s a good number of earning releases lined up, too:

Tuesday: Bank of Nova Scotia (BNS), Booz Allen Hamilton (BAH), Burlington Stores (BURL), Momo (MOMO), HP (HPQ), Salesforce (CRM)

Wednesday: Analog Devices (ADI), Bank of Montreal (BMO), Dick's Sporting Goods (DKS), DSW (DSW), Michael Kors (KORS), Keysight (KEYS), Ollie's Bargain Outlet (OLLI), PVH (PVH)

Thursday: American Eagle (AEO), Dollar General (DG), Dollar Tree (DLTR), Costco COST), Five Below (FIVE), lululemon athletica (LULU), Marvell (MRVL), Ulta Beauty (ULTA), VMwar (VMW), Workday (WDAY)

Friday: Big Lots (BIG)

Futures contracts expiring this week include:

Tuesday: May copper (HGK8), May silver (SIK8), June natural gas (NGM8)

Thursday: June gasoline (RBM8), May Fed funds (FFK8)

Friday: June 2-year T-note (ZTM8)

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.

Long time coming: The past two weeks of S&P 500 price action may not look like much, but it’s pretty remarkable from at least one perspective: The last time the SPX traded within a range similar to the current one—eight consecutive days of trading within 0.5 points of the range defined by a five-day high and the low of the day after it (May 14-15, in this case)—was December 2016. The time before that was January 1986.

Welcome back: And in case you’ve forgotten, it’s Tuesday, not Monday. To see how the US market has historically behaved after the Memorial Day holiday, check out “Below the radar bullishness.”

 

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1 US News & World Report. Best Buy Stock Slumps From Online Sales Slowdown. 5/24/18.