Winning Streak Continues as Volatility Evaporates

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Stocks kept climbing last week as volatility dried up and investors rotated into new sectors.

The S&P 500 rose 0.8 percent between Friday, July 27, and Friday, August 3. It was the fifth straight weekly gain, good for the index’s longest winning streak since December. Did you know Friday’s 2840 closing price was the fourth-highest ever? Just something to think about with Cboe’s dreaded VIX “fear gauge” probing its lowest readings since mid-January.

Good earnings overshadowed mediocre economic news and trade worries. Apple (AAPL) ripped above $200 for the first time  after beating estimates and shifting to stickier revenues. Health-care names including Pfizer (PFE), Illumina (ILMN), Cerner (CERN), Regeneron (REGN) and PerkinElmer (PKI) also rallied on strong results. It’s been a long time since investors paid much attention to that sector.

Clients may also want to keep an eye on the chart as the S&P 500 squeezes above the top of an apparent bullish triangle. Buyers came out of the woodwork on Thursday to defend the same 2800 level where the bears dominated in March and June. In other words, old resistance may have become new support… within narrowing distance from January’s all-time high.

S&P 500 showing key level at 2800

Rotation could explain why the index kept plodding upward. Last week, for example, money snuck into areas that can survive a slower economy. Real-estate investment trusts led the charge with a 3.4 percent gain, followed by health care and consumer staples. Energy was the only major sector to fall at least 1 percent.

Speaking of energy, don’t forget U.S. sanctions go into effect against Iran this morning. Click here for more on that.

The other big global story is China, which continued to suffer as U.S. tariffs demoralize the communist country’s factory managers. Its central bank was even forced to tighten currency-trading rules to defend the yuan. How long can a debt-menaced Beijing hold out against resurgent American manufacturing?

The S&P 500’s single biggest gainer last week was Dish Network (DISH). The satellite-TV company ripped 14 percent from a long-term low after subscriber losses were better than feared. ILMN, engineering firm Fluor (FLR) and fertilizer maker CF Industries (CF) tied for second with 10 percent rallies.

Medical-waste hauler Stericycle (SRCL) was the worst performer, cratering 13 percent on weak earnings. Oil driller Concho Resources (CXO) and chicken company Tyson Foods (TSN) followed with drops of 10 percent and 9 percent, respectively.

This week’s calendar is quieter, with no big economic reports and fewer than 60 S&P 500 members issuing results.

Walt Disney (DIS) earnings are the first big item tomorrow afternoon. Chinese trade data later on Tuesday night could also impact sentiment given the geopolitical situation.

Oil inventories are due Wednesday morning. There’s also a 10-year Treasury bill auction, which could draw more attention than usual because the government needs to finance a large deficit.

Thursday brings initial jobless claims and producer-price inflation. The week wraps up with consumer price inflation on Friday morning.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.