Ready for All-Time Highs
The major averages reversed late Thursday morning following a flurry of buying activity.
No major news preceded the drop. As I noted earlier this week, it wouldn’t surprise me to see the S&P struggle as it attempts to surpass its all-time highs. For now, summer whipsaws are trapping the averages in a tight range.
But there’s still plenty of interesting market action percolating under the surface…
Here are three important trends you need to see before the trading week ends:
1. Transportation stocks lead the way
Here’s an unheralded breakout we didn’t get a chance to discuss earlier this week: transportation stocks rallied to new all-time highs.
The Dow Jones Transportation Average enjoyed a powerful rally off its July lows to finally climb back above its melt-up highs earlier this week. It’s now retreating just below its all-time highs.
Why does the transportation breakout matter?
For one, the move to new highs inches us one step closer to a Dow Theory buy signal.
The idea behind Dow Theory is that we can measure the overall health of the economy by examining the performance of the Dow Jones Industrial Average and the Dow Jones Transportation Average. If the industrials are performing well along with the transports, we can assume goods are being made and delivered. In other words, the economy is humming along.
The transports have beaten the industrials to new highs — but not by much. We’ll watch closely to see if they can drag the industrials back to new highs in the weeks to come.
2. Can Trump save coal?
President Trump visited West Virginia earlier this week to rally his base and reiterate his commitment to bringing the coal industry back from the dead.
But Trump’s tough talk hasn’t help revive the coal biz just yet. In fact, the Energy Information Administration claims U.S. coal production, exports, and consumption will all decrease next year, Bloomberg reports.
It gets worse.
“Since 2010, power plant owners have either retired or announced plans to retire 630 coal plants in 43 states — nearly 40 percent of the U.S. coal fleet,” Bloomberg continues.
Turning to the charts, I don’t see much hope for coal miners heading into the fall.
The VanEck Vectors Coal ETF (NYSE:KOL) enjoyed a strong rally in late 2017 that topped out with the broad market in late January. Yet unlike most market sectors, coal has failed to post a significant recovery.
KOL rallied to a lower high in early June before losing momentum heading into the summer doldrums. It now trades just above critical support levels. A crack below $15.20 could lead to another leg lower for coal.
3. Social media stabilizes
Facebook Inc. (NASDAQ:FB) continued in its efforts to clean up its act this week, purging more than 650 accounts the company attributed to “state-sponsored disinformation campaigns” linked to Iran and Russia.
Facebook shares continue to hover near their post-earnings lows this week. Despite its fall from grace, the stock appears to have found a floor at $170. While a full recovery hasn’t materialized, Facebook shares appear stable for now.
Zuckerberg & Co. need to keep their noses clean leading up to this fall’s midterm elections. Another scandal could easily send this vulnerable stock lower.
Meanwhile, Twitter Inc. (NYSE:TWTR) looks ripe for a bounce at these levels.
You’ll recall that Twitter shares plunged 20% one day after Facebook’s earnings disaster. Management’s attempt to clean up fake and malicious accounts took its toll on user growth, an important social media metric. Despite beating analyst expectations on the top and bottom line, the stock crashed.
But Twitter stock quickly halted its slide, never slipping below its rising 200-day moving average. The stock is now sneaking to new August highs.
A little momentum could push this social media player back toward its earnings gap. A move toward $38 would hand you quick double-digit gains…