Surprisingly, given the strength of the Nasdaq, the Technology sector has rotated into neutral territory. The leaders last week were Energy, Consumer Staples, and Consumer Discretionary. Utilities rotated up to neutral, and that coincides with a slight drop in the 10-year Treasury yield.
The probability of an interest rate hike on September 21 has declined to just 9%. A December 14 rate hike, however, is still at 40.6%. With the CPI being announced Tuesday, however, those probabilities could change dramatically. The current consensus is for CPI to be unchanged for July. That would be the weakest result in 3-years, and it's the primary reason expectations for a September hike are near zero. Excluding food and energy, the index is expected to rise 0.2%, which is a healthy rate, however it's likely not enough to move the Fed.
All market capitalizations are still indicating long positions, so that's the way we'll play it this week. Earnings season is winding down, and we only have Home Depot and Deere on our watch list for this week. We'll also be paying attention to Wednesday's release of the FOMC minutes. That release does have a tendency to move the market, however please keep in mind that it's month old data. Market reactions to the minutes tend to be short lived. Still, for those of us that swing trade, it's important to be aware of the potential for movement Wednesday afternoon.
Finally, this is Options Expiration week, so watch for some volatility on high volume this Friday.
Here's a summary of the week ahead.
Large Caps - Long
Mid Caps - Long
Small Caps - Long
Nasdaq - Long
XLE - Energy
XLP - Consumer Staples
XLY - Consumer Discretionary
XLB - Materials
XLF - Financials
XLV - Health Care
XLK - Technology
XLU - Utilities
XLI - Industrials
Economic Reports of Significance (all times are EDT - GMT-4)
- 08:30 - Empire State Manufacturing Survey
- 10:00 - Housing Market Index
- 16:00 - Treasury International Capital
- 08:30 - Consumer Price Index
- 08:30 - Housing Starts
- 09:15 - Industrial Production
- 10:30 - EIA Petroleum Status Report
- 14:00 - FOMC Minutes
- 08:30 - Jobless Claims
- 08:30 - Philadelphia Fed Business Outlook
- 16:00 - August Monthly Options Expiration
- Before Market Open - Home Depot (NYSE:HD)
- Before Market Open - Deer (NYSE:DE)
Our bias remains long, and we will pay closer attention to Nasdaq stocks. I'm still wary of Energy, however if there's a promising setup with a short-term (1-3 day) projected move, I'll take it. Given the volatility of that sector over the last 18-months, though, I'm reluctant to play anything with a longer forecast. Watch for continued signs of consolidation in the Tech sector, and watch sector rotation carefully for some hidden gems that may be on the upswing. Sectors across the board are staying firmly above their 7-day moving averages, and the Slow Stochastic indicator remains above 50 in all capitalizations, so we are only considering long positions at this time.
As always, trade the market you see, not the market you want. Remain nimble, stick to your trading plan, and always know your exit strategy before entering the trade.