Big Week Ahead, Big Breakout Possible

Well, if you felt the market was running in circles on Friday, you’re partially right, the same could be said for that entire week, but beneath the surface, there was serious action. 

Industrials were the best performing sector overall, led by Monster Beverage (MNST). Also, there were earnings from Deere (DE) and continued strength in Boeing (BA) as the Street cheered signals that a trade deal with China could happen soon.

Consumer Discretionary rocked, and it wasn’t about the tech names in the sector. The top three winners in the entire S&P 500 were all brick-and-mortar retailers:

• (FL) Foot Locker +29%
• (TIF) Tiffany’s +25%
• (RL) Ralph Lauren +19%

There were some clunkers in retail, but the huge moves with the winners prove there’s life in the Amazon world.

Yields Come Plunging Back to Earth

The best performing sector was utilities, which bounced back along with real estate, as the ten-year Treasury yield plunged back to 2.93%. The move lower was somewhat confusing, given the string of relatively strong economic data from consumers to business investment spending.

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Of the current investing trends, I love the following:

• The action in truckers
• The action in semiconductors
• The action in some retail
• The resolve of the market
• The action in industrial stocks

Wild Cards

Looking ahead, the market will be watching Geopolitical and trade negotiation developments and of course, the jobs report at the end of this week.

The surprise meeting and the bro-hug between Kim Jong-un and Moon Jae-in, coupled with reports the United States is sending an advance negotiating team to Singapore, is great news. I think there will ultimately be a deal that will shock the world.

The timeline is difficult and it’s still fine to be skeptical, but Kim seems to want a deal and seems to want to move his nation into the current century.

Breakouts

The Russell 2000 continues to gallop ahead like a thoroughbred released from the starting gate, and it’s made a series of new all-time highs. This kind of momentum happens on breakouts (especially true breakouts) when stocks or indices hit new all-time highs on stronger-than-average volume. Watch for the Dow to attract buyers once it closes above 25,000.

Gasoline Prices

In recent years, the correlation of gasoline prices has been linked to the economy. After the recession and market crash of 2001, gasoline prices were flat for a long time but began to pick up traction as the economy came on strong.  Gasoline prices peaked in the fourth quarter of 2007, which is when the Great Recession began.

Supply

On the supply side, we saw a massive decline in U.S. rigs from a 2014 peak. Now, those rigs are coming back online, including 15 more oil rigs this week. That news and reports Russia and Saudi Arabia are in talks to pump more sent crude oil plummeting.

Today's Session

Turmoil in Italy this morning is roiling our markets a bit, but I think it's the political, and not an economic issue, that has the Establishment on both sides of Atlantic afraid.

Meanwhile, the North Korea summit is back on, and that's great news.  No need to force the issue, but no need to panic.