A rough Monday sunk chances for a positive week on the indexes as the choppy action continues. As we mentioned in last week’s recap while some technical indicators improved, solid markets show lower volatility than what we are currently seeing. This week will be interesting because there is usually a positive bias Thanksgiving week as many professional traders are off for the week! Not much news worthy this week – some fears around oil, Brexit, China trade, etc etc – mostly technical conditions continue to be weak.
Macro headwinds, including trade tensions, rising interest rates, a stronger dollar, and slowing growth abroad have also helped to trigger a pivot towards negative sentiment in the market. “This is where peak earnings growth comes in,” Essaye said, arguing that the stock market has been supported this year by two pillars: strong economic growth and strong earnings growth. “The market knows that earnings growth has peaked, and so earnings growth can’t be a reason any longer to ignore the macro picture,” he said.
Oil had a very rough Monday (the 11th straight session down) and – for now – followed that with just a small dead cat bounce.
Worth pointing out that the 10 year bond yield did fall back below (for the 2nd time) it’s “breakout level”.
Look at these market favorites – stocks like Facebook (FB) and Google (GOOG) are not even able to rally above their 20 day moving averages. That is a very weak sign.
Interesting to see the bullish “outside reversal” day (when the intraday price both goes higher and lower than the prior day’s high and low – and then closes above the prior day high) in the Chinese market is still holding.
For the week the S&P 500 fell 1.6% while the NASDAQ sunk 2.2%
In economic news, retail sales rose by 0.8% for October, above the expectation of 0.6%.
Here is the 5 day weekly “intraday” chart of the S&P 500 …via Jill Mislinski.
The week ahead…
Markets will be closed Thursday for the holiday while financial media will breathlessly report from retailer parking lots on how the economy is doing based on how many cars they see. (while of course many people are shopping in their PJs on their phone or computer). Most years Thanksgiving week tends to trend up so we’ll see how things turn out in the midst of this selloff.
Short term: The NASDAQ continues to be weaker than the S&P 500 but neither are in a great position right now. After breaking over this trend line we have drawn on the chart last week, the S&P 500 fell right back below it – in fact Friday’s intraday high was exactly at this line! The NASDAQ is just not in good shape – much like the market darlings we noted above, the 20 day moving average is serving as resistance.
The Russell 2000 – not much to add we haven’t already said – it’s in bad shape.
As we said last week it is a bit difficult to trust the NYSE McClellan Oscillator being positive when the indexes are in weak technical standing. So while it remained in the black all week – which is usually a good short term sign – we have to see better conditions in the general market to trust this.
Long term: The S&P 500 is still holding onto support but the NASDAQ is beginning to create a sustained period of time below this very well defined channel it has been in years. If that sustains it is bearish.
Charts of interest / Big Movers:
Monday, Abiomed (ABMD) tumbled 17%, after the results of an FDA study into one of the firm’s heart-pump products disappointed investors.
A large drop for Goldman Sachs (GS) Monday as U.S. prosecutors allege that Goldman bankers were involved in a bribery and kickback scheme led by a Malaysian financier to land Goldman $6 billion in deals to underwrite bonds for the fund, known as 1Malaysia Development Berhad.
All sorts of volatility in Pacific Gas and Electric (PCG) as the electric utility company continues to deal with the fallout of wildfires throughout California. The company has told California regulators one of its transmission lines suffered an outage at about the time a deadly wildfire still raging in Northern California started last week. Thursday there were fears the company doesn’t have enough insurance to cover the losses from California’s wildfire. Then Friday, California State Public Utilities Commission President Michael Picker said in an interview with Bloomberg that the state would be very reluctant to allow these firms to go bankrupt.
Advance Auto Parts (AAP) surged 11% Tuesday after the firm beat third-quarter estimates and raised its full-year 2018 guidance.
Quite a run by Walmart (WMT) but Thursday the company announced it missed revenue expectations for the third quarter—blamed on currency headwinds—adding to fears that the U.S. consumer isn’t as healthy as data have suggested.
Housing stocks have had a difficult past half year which we’ve highlighted quite a few times – Thursday KB Home (KBH) sank 15% after the company issued disappointing guidance for its fourth quarter results. In a business update call Chairman and CEO Jeffrey Metzger blamed weakness on rising interest rates and “steady home price appreciation over the past several years.”
Friday, Nvidia (NVDA) fell sharply after reporting disappointing quarterly results late Thursday. The company missed revenue expectations for the third quarter and a issued forward guidance that was well below expectations.
Have a great week and we’ll see you back here Sunday!