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Good News for the Bulls?

It’s time for two key market sectors to sink or swim.

Investors have endured a painful grind lower all month as the major averages retreat from their all-time highs. Just under the surface, a couple of sectors have even teetered on the edge of a major breakdown this week: small-caps and transportation stocks.

But thanks to a strong performance during yesterday’s relatively mundane trading session, small-caps and transports have avoided disaster. They’re even subtly hinting that a fresh rally could be in the works.

We’ve paid close attention to the struggling transports this summer. Just one month ago, I showed you how the Dow Jones Transportation Average remained well below its 2019 highs while the Dow Jones Industrial Average extended toward a breakout.

The situation has deteriorated as the August pullback gained steam. While the Dow industrials have lost a little more than 4% over the past four weeks, the transports have skidded lower by 8%. More importantly, the transports are now testing their May lows after failing to climb back to their year-to-date highs last month.

TRAN

Thankfully, yesterday’s action was exactly what the bulls ordered. The Dow transports shot off their lows to not only hold support, but make back all of Tuesdays losses — and then some. The transports closed higher by nearly 1.8% on the day, compared to a 1% gain in the Dow industrials.

Small-cap stocks also proved resilient in the face of a potential breakdown.

Like the transports, beaten-down small-cap stocks also had a good day. The Russell 2000 small-cap index posted a respectable gain of more than 1% to hold the line after closing below its May lows on Tuesday.

RUT

Relative weakness in both small-caps and transports has been a thorn in the market’s side all summer. A little positive momentum here could go a long way in repairing some of the damage inflicted on the markets this month.

While the bulls and bears duke it out for market supremacy, the quality control battle over Amazon’s third-party products intensifies.

Is Amazon.com (NASDAQ:AMZN) losing control of its online inventory?

An investigation conducted by The Wall Street Journal found more than 4,000 items currently offered on Amazon’s storefront are mislabeled, banned, or straight-up dangerous — including toys containing lead, unsafe medications, and motorcycle helmets that do not pass Department of Transportation standards.

Unfortunately, a mislabeled motorcycle helmet purchased through Amazon allegedly led to a fatality in 2014 after a rider crashed his motorcycle wearing a helmet purchased on Amazon that failed to protect him.

Some items, like sleeping mats for infants that can cause suffocation, have been banned by Amazon. Yet the products can still be found on the site.

Amazon has responded to the investigation, noting that the company employs “proprietary machine learning technology that stops bad actors before they can register or list a single product in our store.”  Amazon also claims its spent $400 million protecting its marketplace last year, blocking more than 3 billion suspect listings.

While it’s clear that Amazon makes every effort to quickly remove any products in violation of laws or bans, it has a long way to go when it comes to protecting customers from unscrupulous third-party sellers.

Despite the controversial nature of this story, it hasn’t gained much traction due to the never-ending trade war updates the media subjected us to over the weekend. Amazon shares took a hit to close out the trading week. They now rest just above their flat 200-day moving average — which is also where the stock inspired some panic selling during the final days of the May swoon.

AMZN

Frankly, I’m not too concerned about Amazon just yet. Despite its sharp drop from its July highs, shares have posted gains in-line with the Nasdaq Composite year-to-date and remain above their May “fake-out” lows.

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Rude Awakening PRO and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing for 13 years. In 2018, Greg’s Rude Awakening PRO portfolio beat the S&P 500 by 14%.

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