Not So Fast

Not so fast.  Stocks were unable to sustain Friday’s bounce with 3 of the major indices closing lower in yesterday’s session.  The S&P500 attempted to hold on to gains but was unable to and ultimately closed down on the session.  The index closed below its 200 day simple moving average after having bounced back above it on Friday (see chart 2 in my attached daily chartbook).  The S&P will get some support from its 2733 Fibonacci line.  The Dow Jones Industrial Average spent a good portion of yesterday’s session in the green until a late session fade brought the index into the red closing at its daily low.  The Dow closed above its 200 day moving average for a second session in a row, which is a small step toward recovery.  The Dow closed right around its 25297 Fibonacci line which will serve as a support level in the index’s bid to build a base (see chart 6 in my attached daily chartbook).  The NASDAQ 100 faired the worst of the major indices closing down -1.24% on the day.  The NASDAQ’s heavy weighting on growth companies is credited for the selling.  The index managed to stay above its 200 day moving moving average and closed on its 7065 Fibonacci line, which will be its support in upcoming sessions (see chart 8 in my attached daily chartbook).  The small cap Russell 2000 finally had a day of relief as it was the only index in the group that managed a positive close yesterday.  The small cap index traded off its high of the session to close right on its 1533 Fibonacci line which, in this case, will be a resistance line (see chart 7 in my attached daily chartbook).  The R2K has a long row to hoe in its journey to recovery and it still remains in correction territory.  Correction territory is classically defined as trading 10% or more below a recent high.  All of the S&P, Dow, Russel, and NASDAQ are still risk off.  Although yesterday was an orderly trading day it was evident that there continues to be fundamental differences in investor behavior from earlier in the year.  Most notably absent is the aggressive dip buying of growth and tech stocks that managed to keep all of the equity markets trending positively since its first major dip in February.  This is possibly an indication of investor indecision as those investment themes are considered to be more aggressive.  Additionally, I have been highlighting a trend from growth to defensive stocks over the last several months and that trend continues (see chart 16 in my attached daily chartbook).  Bonds were relatively flat on the day despite late session news of the swelling US deficit contributed to by rapidly rising finance costs.  The US has been in record debt territory for some time and as rates go up so do the costs of finance.  Even governments face headwinds in a rising rate environment!  Ten year notes start today’s session with slightly higher yields of 3.16% and the US Treasury will auction off its first-ever 2 month bill, which should be interesting.

Today we will get industrial production (expected to grow by +0.2%), the NAHB housing market index (expected to be 66 down from last month’s 67), and JOLTS (expected to come in at 6900). All of these are important factors and can have an impact on the markets today.  The housing index is first of several this week and will be watched really closely by traders.  The big drivers today will likely come from the sizable list of companies that will report before the opening bell. Those include Morgan Stanley, Goldman Sachs, Black Rock, J&J, and Dominos.  After the bell we get Netflix and IBM, amongst others.  Releases will be carefully scrutinized as earnings beats are not enough to appease nervous investors and analysts will be looking for rate, tariff, and currency impacts on the bottom line.  According to FactSet research 60% of companies that reported so far have cited the strong dollar as having an impact on earnings, which may be the beginning of a trend.  Besides earnings, we can expect a lengthy debate over the rising deficit and its impact on not just bonds and currency, but also on investors’ appetites for risky equities.

daily chartbook 2018-10-16

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