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“If any of my competitors were drowning, I’d stick a hose in their mouth.” – Ray Kroc
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After five straight days of losses and declines in nine of the last ten trading sessions, bears are making way for the positive day in the Dow, as futures are firmly in positive territory. Whether the bears stay out of the way for the entire session, though, is another question. Not helping matters for the bulls this morning is the just released Empire Manufacturing report which came in at -31.8 compared to forecasts for a reading of -1.8 and last month’s reading of 10.8. Going back 20 years, today’s report was the third weakest relative to expectations on record trailing the reports from April 2020 and August 2022. This weakness comes against the backdrop of Atlanta Fed President Bostic saying that inflation is not coming down very quickly and that rate cuts do not factor into his near-term plan.
If the maritime analogy were to be applied to markets, it has been a bit of a slack tide in the last week as there wasn’t much in the way of a major current in the market’s direction. While the S&P 500 was down fractionally, and most sectors were lower, there is a lot of disparity. Heading into the new week, seven sectors are neither overbought or oversold, three sectors are overbought, and just one sector (Energy) is oversold. In general, sectors that had been performing the worst YTD, did the worst last week and vice versa. Take the Energy and Communication Services sectors, for example. Energy has been the worst-performing sector YTD; it was the worst performer last week and it is further below its 50-day moving average (DMA) than any other sector. Conversely, Communication Services is the top-performing sector YTD, was the best-performing sector last week and it is further above its 50-DMA than any other sector.
Looking in more detail at the Energy sector, it has been stuck in a downtrend since last October, and after a steep sell-off to kick off the month, the sector looks to be trying to stabilize. Whether this attempt proves successful remains to be seen, but it is worth noting that this most recent low has taken place on lower levels of volume compared to the one in March.
Communication Services has been in a steady uptrend since its Q4 lows. While it has consistently been making higher lows, the ETF that tracks the sector (XLC) has stalled out at resistance multiple times this year. If it can break above $60, there’s no short-term resistance above.
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