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Midweek Market Trend for October 11, 2017

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In spite of hurricanes, wildfires and geo-political angst, the stock market has continued to trade stubbornly around new highs.  Many technical analysts look at the ratios of different areas of the market to gauge the strength of the market “under the hood.” 

The first of these is the relative strength of the transportation stocks to the utility stocks.  As seen in Figure 1 (A), since the August lows, the transports are clearly outperforming, generally a positive sign.

Source: StreetSmart Edge®

Second, the healthcare sector contains a mix of defensive and offensive industries.  Notice how the more aggressive biotech industry is outperforming the overall sector, another indication of the “risk-on” nature of the current advance (Figure 2)(A).

Third, let’s look at the performance of the consumer discretionary stocks as compared to consumer staples.  Again, since August, the more offensive discretionary stocks are out performing the more defensive staples (Figure 3)(A).

Source: StreetSmart Edge®

Within the consumer discretionary sector, the hotel stocks have recently broken out of a five month long trading range (Figure 4).  So how far might they run?  Some technical analysts would take the height of the range (626 points) and add this to the breakout price of 7883 to get an initial target of 8509.  Keep in mind, though, that the “target” is based on historical performance, and should therefore not be considered a certainty.

Staying within the consumer discretionary sector, the automobile manufacturers are also trading well. Notice that there has been no momentum divergence: as the automakers have pushed to new highs the RSI has been making new highs as well Figure 5 (A).

Turning to interest rates, notice how on the chart of the yield on the thirty year treasury, the 20 day exponential moving average has just recently crossed above the 50 day exponential moving average. While no signal works all the time, such a cross has often predicted higher rates (Figure 6).

 

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Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. Examples are not intended to be reflective of results you can expect to achieve.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Past performance is no indication (or "guarantee") of future results.

Schwab does not recommend the use of technical analysis as a sole means of investment research.

Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

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