Markets Performance / Current Trading Range
- We had an explosive week in the markets this past week, as the benchmark S&P 500 rose +3.3% from 1,951 on Friday, 10/2 to 2,015 on Friday, 10/11.
- The S&P 500 is up roughly +8% or over 140 points from its recent support level lows of ~1,870 (last seen on 9/29 and 8/25), with the majority of this major move (~90 points or +5%) actually coming on the heels of the previous Friday’s jobs report.
- While the U.S. markets surged on the week, it’s important to note several key points:
- A short-squeeze was likely a major contributor to the markets moving higher.
- Relative performance overseas was even more impressive.
- The S&P 500 was actually the worst performer amongst other major world markets:
- German DAX up +6%, French CAC 40 and UK FTSE up +5%, Hang Seng and Shanghai Composite up nearly +4.5%, and the Japanese Nikkei up +4%.
- On the technical front, the S&P 500 has only returned to the upper end of its current trading channel (1,870 – 2,020).
- Despite the global economic slowdown and deflationary headwinds, commodities also had another stellar week.
- WTI crude oil back near $50/barrel
- Explosive moves higher in: zinc, copper, aluminum, nickel, lead, silver, and gold
- U.S. dollar at 3-week lows vs. the euro
Recent Trading History
- Continuing on the technical front, it has become increasingly clear that the former support levels for the S&P 500 (1,980-2,000*) from late 2014/early 2015, are now acting as strong resistance for the market (*currently testing resistance levels), as the benchmark index has failed on several occasions since late August to push above this key threshold – not to mention, still trading below the all-important 200-day moving average.
- The S&P 500 was range-bound (nearly 100 point range) for roughly three months (May-July), trading sideways between 2,040 and near record territory of 2,120, before falling convincingly below the 200-day moving average in late August.
- Volatility has increased since late August, as the S&P 500 dropped as much as -12% to a recent low of 1,867 (level last seen in October of 2014).
- 500-1,000 point intraday swings are once again occurring on a more regular basis.
Market Drivers (*Level of Importance/Weight in Descending Order/Bold Discussed in Audio Podcast)
SHORT-TERM (ST) DRIVERS:
- Federal Reserve’s Interest Rate Hike
- Continuation of Risk-On/Risk-Off
- Chinese Economy Slowing / Market Turmoil
LONG-TERM (LT) DRIVERS:
- Economic Data
- Corporate Earnings
- Currency Wars
- Global Debt Levels
- Geopolitics and Terrorism
Major Events on the Horizon
- Earnings are in full-focus with much of the attention on the banking sector along with 36 S&P 500 companies due to report throughout the week.
- FED officials will be speaking again throughout the week, as market participants continue to listen in for additional clarity on monetary policy direction.
- FOMC Decision on Interest Rates
- October 27-28
- December 16 (with Press Conference)
- It is a heavy economic data week (retail sales, PPI and CPI, initial jobless claims, Empire manufacturing, industrial production, and University of Michigan sentiment report, etc.)
- Negative Interest Rates (NIRP) – A negative interest rate policy (NIRP) is an unconventional monetary policy tool whereby nominal target interest rates are set with a negative value, below the theoretical lower bound of zero percent (Investopedia, 2015).
- Short Squeeze – A situation in which a heavily shorted stock or commodity moves sharply higher, forcing more short sellers to close out their short positions and adding to the upward pressure on the stock (Investopedia, 2015).
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