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Post-Election Party Rolls On, With DJIA On Pace for 6th-Straight Week of Gains

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December 16, 2016

(Friday Market Open) It looks like the Dow Jones Industrial Average (DJIA) may put in its sixth-consecutive week of gains, and other indices also showed strength early Friday. This has truly been an amazing post-election rally.

The market has come a long way since early November, and for the full year as well. The S&P 500 Index (SPX) is up nearly 11% year-to-date, with the DJIA up nearly 14%. Small stocks represented by the Russell 2000 index have outpaced the bigger names, rising 20% since the start of the year. That said, some of the big names in the DJIA, particularly financial sector stocks, continue to bolster that index, propelling it to near the 20,000 mark. Could today be the day it pushes through that iconic level on the charts? We’ll have to wait and see.

If stocks are to continue their ascent, there may be a few things to deal with along the way, including Friday’s “quadruple witching.” Today marks the expiration of stock index futures, stock index options, stock options, and single stock futures, something that happens all at once just four times a year. When it does, it’s not uncommon to see some participants closing out old positions and rolling into new ones, and that could create some volatility, especially near the open and close, so it may be prudent to be on the lookout. Pre-holiday profit taking might also come into play, and could have been one aspect contributing to the late-day fade of Thursday’s rally. Today is the last big day of the year for many trading firms, and that may mean some position tapering.

Speaking of volatility, VIX continued to flounder early Friday and remained below 13. What does this tell us? Perhaps that market participants aren’t projecting a high possibility of a sell-off in the last two weeks of the year, because they’re not buying protection.

Even as stock momentum slowed late Thursday, the dollar kept rolling along, rising to 14-year highs. With the euro at around $1.04, parity is drawing near, and that raises questions about whether strength in the dollar might start affecting U.S. multinationals that rely on exports for big chunks of their business. Next months’ Q4 earnings from some of the big corporations could begin to show if there was any effect.

A couple earnings of note included Oracle (ORCL) and Honeywell (HON). Shares of ORCL and HON both fell in pre-market trading, though earnings from ORCL surpassed analysts’ expectations. One observation about ORCL: Its projections weren’t as good as in the past, and the company does a lot of business overseas. HON was down as much as 8% after offering what some analysts believed was a weak outlook for 2017.

What happened to the oil market? Just a few days ago, $55 a barrel seemed pretty close, but now prices are much closer to $50, which represents a technical support level. One simple answer is the dollar, as the dollar and oil tend to move in opposite directions. Gold often acts the same way, and followed that tradition Thursday by sinking to new 10-month lows below $1,130 an ounce. Both gold and oil have been hit hard by the Fed’s more hawkish stance regarding 2017 policy, it appears.

Resistance for the S&P 500 (SPX) is around 2272, and with futures rising to near that point before the open, there may be a resistance test right out of the gate. Support is at the 2251 to 2252 area.

S&P 500

FIGURE 1: ICE COLD GOLD.

The S&P 500, plotted through Thursday on the TD Ameritrade thinkorswim® platform, is trading just below recent all-time highs even as gold prices (purple line) hit 10-month lows. Support for gold may be down at around the $1,050 an ounce level, analysts say. 

More Certain Footing: It’s possible that stocks keep going up because with the presidential election behind us, investors have a better idea of what policies might be adopted in Washington, D.C. Some of the biggest questions that were hanging over us are gone, and generally the market tends to perform better with at least some uncertainty out of the way. Another question hanging over the market, to some extent, was the possibility of a rate hike, and now that’s out of the way as well, though the Fed’s somewhat more hawkish stance on 2017 did come as something of a surprise.

Not Going Anywhere: Former President Richard Nixon once told reporters that they wouldn’t have him “to kick around anymore.” But that won’t be the case with Fed Chair Janet Yellen, as she appears ready to stay in her post even in the face of past criticism by President-elect Trump. Yellen said Wednesday in her press conference that she intends to remain as Fed Chair, but declined to say whether she would accept an appointment to another term. She also didn’t offer a definitive answer as to whether she’d stay on as a Fed board member if she didn’t get nominated for an additional four-year term as chair when her current term ends in February 2018. It might be interesting to watch how the Yellen/Trump relationship evolves during the roughly one-year period between the time he takes office and her term ends.

Is Our Appetite Falling for Electronic Gadgets? Exports of Chinese mobile phones, tablets, laptops and related accessories to the U.S. have fallen in value by 4.8% this year, according to a report in the Financial Times on Thursday. Total U.S. imports of mobile phones fell 4.9% in unit terms in the first 10 months of the year, to 176 million, said Briefing.com, citing figures from the U.S. Department of Commerce and the U.S. International Trade Commission. Could this imply declining consumer demand for such products, or is it just a momentary blip? Time will tell. If demand for such products is indeed down, one would think it might be reflected in shares of the biggest electronic gadget maker, Apple (AAPL). But AAPL shares have powered higher lately, rising to nearly $116 on Thursday, a nearly two-month high.

Good Trading,
JJ
@TDAJJKinahan

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