Market action continues to be weak and real damage has been done technically. Selling Wednesday and Friday was particularly harsh, with an oversold rally in between. But the “buy every dip and make bears cry” mindset seems to have disappeared for the moment.
“We’ve had this massive shift in sentiment in recent months from ‘the market can do no wrong,’ to ‘the market can do no right,’” said Amanda Agati, co-chief investment strategist at PNC Financial Services Group.
The triple overhang of trade uncertainty, Fed rate increases, and slowing global growth are “causing investors to jump on any bad news, or even just mediocre news, to punish stocks,” Lance James, senior portfolio manager at RBC Global Asset Management, told MarketWatch.
While some of the most dramatic rallies can happen within the context of a correction, those with a short to intermediate term view still would be wise to view the near term with caution. And for the first time in a long time there is some cautionary tales out there even on the long term charts.
(Far) across the pond, please note the Chinese market did not hit a new low and the “outside reversal” day to the upside we noted last week is still holding sway. That said if things get ugly from here, that could fall away quickly.
For the week the S&P 500 fell 3.9% while the NASDAQ fell 3.8%. The S&P 500 is now down for the year while the NASDAQ is still up 3.8%.
Sales of newly constructed homes swooned to the lowest since December 2016. The charts of the housings stocks have been telling us about this slowdown well in advance!
The Fed’s Beige Book showed that wages and prices are rising in the central bank’s 12 districts but not faster than a “modest to moderate” pace and that the economy expanded at a “modest to moderate” pace. Still, the Fed’s account of the business atmosphere helped to reinforce the view for skittish investors that trade clashes are a genuine, creeping threat to the economy.
The Commerce Department reported that the U.S. economy grew 3.5% in the third quarter, beating forecaster estimates of 3.4%.
The European Central Bank on Thursday reaffirmed its plan to end the asset-buying program at the heart of its quantitative-easing strategy in December provided data show inflation remains on track to eventually meet its target. The ECB left interest rates unchanged and repeated that they will remain at present levels “at least through the summer of 2019.”
Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski.
The week ahead…
Earnings season continues but all eyes will be focused on the health of the market in general. ISM Manufacturing and the monthly employment data will be released Thursday and Friday respectively.
Short term: We expanded our short term charts out to over a year to give some context. For the S&P 500, a trend line connecting lows of early 2018 has been broken and to even begin talk of a healthy market would entail that level being recovered along with a move back above the 200 day moving average. Not too different on the NASDAQ. One note for the longer term – there is a “gap” in the NASDAQ chart down there near 6000 – at some point…some day… that should get filled. Doesn’t mean in this correction.
This Russell 2000 is just in rough shape and not too far from 2018 lows.
The NYSE McClellan Oscillator continues to tell us to be cautious as it has for 2 months now. Last positive reading was in August!
Long term: Finally some fireworks in the long term charts as some support levels were broken this week.
Charts of interest / Big Movers:
Monday, American Railcar Industries (ARII) soared 51% after the company announced said it would be acquired by a fund managed by investment firm ITE Managment LP. Under the terms of the deal, valued at $1.75 billion, ITE will pay $70 for each share of the company.
Tuesday, Caterpillar (CAT) fell 7.6% after the industrial giant reported profits and revenue ahead of analysts expectations but offered guidance that was below consensus.
McDonald’s (MCD) rose 6.3% after announcing third-quarter results. When “boring safety stocks” stocks like McDonald’s begin to lead the market it’s not a great thing.
Wednesday, Texas Instruments (TXN) fell 8.2%% after the chip company released third-quarter results late Tuesday.
AT&T (T) shed 8.1% Wednesday, after the telecommunications and media giant reported third-quarter earnings that missed expectations but sales that beat.
Thursday, Tesla (TSLA) soared 9.1%, after the electric-car maker produced the largest quarterly profit in the company’s history.
Ford (F) rose 9.9% Thursday – its best day in 9 years – after reporting better-than-expected earnings after Wednesday’s close.
Twitter (TWTR) soared 15.5%, after the company posted earnings and revenue beats for the third quarter, though a 9% decline in monthly active users was a sharper drop than analysts expected.
Advanced Micro Devices (AMD) sunk 15.5% Thursday after the firm reported revenue and an outlook that missed expectations Wednesday, after the close.
Amazon (AMZN) closed below its 200 day moving average Friday for the first time since early 2016 after it posted a record profit but sales disappointed. Guidance for next quarter was also not to the market’s liking.
Have a great week and we’ll see you back here Sunday!