Schwab Live: Midweek Market Trend for December 7, 2016

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Over the past few weeks, several well-publicized themes have emerged in the market and these have been reflected in sector and industry performance.  Hopes for increased infrastructure spending have led to a strong rally in basic materials stocks (Figure 1).

Figure 1:

Source: StreetSmart Edge®

The rise in interest rates which started in the late summer accelerated after the election and has propelled the financial stocks to new highs (Figure 2).

Figure 2:

Source: StreetSmart Edge®

The recent agreement by OPEC members and Russia to cut back oil production has led to a breakout in energy stocks (Figure 3).

Figure 3:

Source: StreetSmart Edge®

There have, though, been some interesting developments in other industries as well.  A case in point is the automobiles. They have been in a longer-term downtrend since September of 2014 (figure 4).  As of this writing, (December 6th), they are once again testing the downtrend line (A). A break above that line would be quite a bullish development.  There is some evidence that this might happen. First, there has been a series of significant higher lows since February (B).

Figure 4:

Source: StreetSmart Edge®

Second, the auto parts stocks have already broken their down trend line Figure 5 (A).

Figure 5:

Source: StreetSmart Edge®

Finally, zooming in on the autos chart, they have just recently broken through horizontal resistance at around 2600 (Figure 6) (A). Also, since November 21, the relative strength line versus the S&P500 has turned up (B).

Figure 6:

Source: StreetSmart Edge®

The rapid rise in interest rates mentioned above has had, as might be expected, a negative impact on utilities stocks. They have recently just broken down from a head and shoulders toping formation (Figure 7) (A).  How much lower could they go?  If interest rates continue moving higher, the utilities could potentially test their long term uptrend line (B).

Figure 7:

Source: StreetSmart Edge®

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