The air up there
06/04/18

Well, here we are again.

Another seesaw up-day, down-day performance last week by US equities ended with a net gain for the broad market, and put the S&P 500 (SPX) back toward the top of its recent trading range.

That wasn’t the way the week started, though. Traders returned to their screens after a long holiday weekend to worries of Eurozone failure surrounding Italy’s governmental implosion, and a 1.6% intraday sell-off in the SPX:

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

Source: OptionsHouse

But the index made up all that ground—and then some—on Wednesday, only to retrace its steps again on Thursday amid news the White House was slapping steel and aluminum tariffs on the European Union, Canada, and Mexico. The week ended on an up note, though, with a blockbuster estimate-beating jobs report on Friday setting the tone early, and the SPX following through with a 1.1% gain for the day.

The Russell 2000 (RUT) and the tech-heavy Nasdaq 100 (NDX) did the SPX one better, though: The RUT closed at a new record high on Wednesday, while the NDX busted out above the high of its trading range on Friday, coming to within 1.4% of its March 13 all-time high. Here’s the rundown for the week:

Index comparison table for week ending June 1, 2018. S&P 500, Nasdaq 100, Russell 2000, Dow Jones Industrial Average.

Source: OptionsHouse (data)

Despite crude oil hanging around the level of the previous week’s sell-off lows, Energy (+2.5%) was the strongest sector in the S&P 500 last week, followed by Information Technology (+2.1%), and Real Estate (+1.7%). The worst-performing sectors were Financials (-1.3%), Telecom (-0.9%), and Industrials (-0.7%).

The week’s geopolitical worries drove money into the traditional safe-havens of US Treasuries and the dollar early in the week. The June 10-year T-note futures (ZNM8) hit a nearly four-month high on Wednesday, while dollar strength was reflected in the euro’s decline to its lowest level in almost a year on Tuesday. July WTI crude oil futures (CLN8) attempted to stage a rally on Tuesday and Wednesday, but ended up giving back those gains to close below $66/barrel on Friday, down on the week.

This week’s economic calendar features a smorgasbord of production, service economy, and trade numbers:

Monday: Factory Orders

Tuesday: PMI Services Index, ISM Non-Manufacturing Index, JOLTS

Wednesday: International Trade, Productivity and Costs

Thursday: Chain Store Sales, Quarterly Services Survey

Friday: Wholesale Trade

Earnings to keep an eye on include:

Monday: Casey's General (CASY), HealthEquity (HQY), Palo Alto Networks (PANW)

Tuesday: HD Supply Holdings (HDS), Navistar (NAV), Ambarella (AMBA), Guidewire Software (GWRE), Ollie's Bargain Outlet (OLLI), Restoration Hardware (RH), YY (YY)

Wednesday: Signet Jewelers (SIG), ABM Industries (ABM), Five Below (FIVE), Thor Industries (THO)

Thursday: Hamilton Lane (HLNE), J.M. Smucker (SJM), Vail Resorts (MTN), Broadcom (AVGO), DocuSign (DOCU), KMG Chemicals (KMG)

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.

A bullish bear? The S&P 500’s downside breakout of its two-week trading range on Tuesday—followed by the next day’s upside reversal and high close to end the week—is a price formation many traders refer to as a “bear trap”: essentially a downside breakout of a consolidation pattern that draws in short sellers and stops out some long traders, but then is quickly reversed, potentially leading to an energetic up move as sellers rush to the exits and longs pile back in. Some traders interpret a push above the high of the consolidation pattern (for example, the May 14-22 highs) as a confirmation of this bullish pattern.

 

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