Our President’s Comments

10/16/17

  • After pushing against 2.40% last Friday after a strong US average hourly earnings number, 7 days later the miss on CPI saw 10yr USTs close the week at 2.274% having traded just below 2.33% most of the session before hand. September core inflation rose only 0.13% mom (vs. 0.2% expected) and 1.7% yoy (vs. 1.8% expected). In the details, core services inflation was inline, but the main miss was on the core goods side, which fell 0.2% mom (-1% over past 12 months – the lowest reading since August 2004). Deustche Bank believes some of this weakness should prove transitory (eg: medical care commodities), but there were also more broad based signs of weakness. They expect core CPI inflation to remain near recent levels in yoy terms through 2017, albeit with risks that it now rounds down to 1.6%.

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  • This now makes it 6 out of 7 months of misses relative to expectations but US inflation tends to lag growth by around 18 months and growth was weak at the end of ‘15/ early 16; many at the Fed have recently suggested a bias to look through the ‘temporary’ weakness. The Fed have also made it clear they’re looking more and more at financial conditions in their rate discussions.
  • Friday’s number should reduce the risk of a December Fed hike but not perhaps by much. Bloomberg’s calculator has it at 73.3% now, down 3.4ppt versus Thursday’s close. If the usual lag between growth and CPI holds, we still may have weak YoY CPI into Q1 but just as the market gives up on inflation ever rising again, we may get some higher than expected shocks as we move into Q2 2018. China’s September CPI was in line at 1.6% yoy, but lower than the prior month, driven by lower food prices. Elsewhere, PPI was notably higher than consensus at 6.9% yoy (vs. 6.4% expected).
  • The main movers and shakers of global central banks spoke on inflation, tapering and risks at the annual IMF meeting. Firstly, Yellen said “my best guess is that these soft readings (inflation) will not persist” and that “with the ongoing strengthening of labor markets, I expect inflation to move higher next year”. On rates, she noted “we expect the neutral level of the federal fund rates to rise somewhat over time” and that “additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion”. On fiscal policy changes, she said “it’s a source of uncertainty”, we have taken “a kind of wait and see attitude”.
  • ECB’s Draghi also reiterated that he is “confident” inflation will “gradually converge in a self-sustained manner”, but we should be patient, because “it’s going to take time”. On tapering, ECB’s Praet had noted the idea of a bigger reduction in monthly bond buying in exchange for longer duration of the program earlier. When asked by reporters, Draghi said that Praet “had said it very well”. Friday, Bloomberg reported that ECB policy makers are considering reducing the pace of bond buying to €30bn/mth (from €60bn/mth), but for nine more months to September 2018. Elsewhere, Bundesbank President Weidmann noted he does not see the need to further expand monetary stimulus, while the ECB’s Italian governor Visco noted he would prefer not to have specific dates on the unwinding of QE as ECB needs “the flexibility that is in the program”.
  • BOE’s Carney reiterated he may need to raise rates in the “coming months” as the UK’s economy is running out of spare capacity. BOJ’s Kuroda noted “achieving the 2% target is still a long way off and the BOJ will persistently (maintain) aggressive monetary easing” and he does not “see risks mounting in the financial markets in the US, Europe and Japan”. This was also backed up by Draghi who saw little signs that “stocks and bonds are having valuations that are stretched when compared to historical averages”.
  • China’s PBC Governor Zhou noted that “6.9% economic growth may continue in the second half”. He also said “the main problem is that the corporate debt is too high” and that while debt servicing costs remain low, “we need to pay further efforts to deleveraging and strengthen the policy for financial stability”. Zhou flagged that some of China’s corporate debt includes borrowing from financing vehicles owned by the local governments, so if re-defined, corporate debt / GDP is closer to 125% than the official figure of 160%, while government debt would be 70% of GDP (vs. 36%). He also said the asset management business is “a relatively chaotic situation”, partly due to three different regulators with different sets of rules.
  • South Korean military officials warned North Korea may be preparing for another round of missile launches, while US and SK navies have begun a joint drill involving 40 warships. US Secretary of State, Tillerson said he will continue with diplomacy measures with NK “until the first bomb drops”. This morning in Asia, markets have followed the positive lead from the US and traded higher. The Kospi (+0.12%), Nikkei (+0.68%), ASX 200 (+0.63%) and Hang Seng (+0.81%) were slightly higher.
  • In Austria, the center-right People’s Party (OVP) leader Sebastian Kurz is expected to become the world’s youngest government leader (aged 31). Of the votes counted (85%), the Interior Minister Sobotka said the OVP received 31.4% (vs. 33% in late polls per The Independent), while the Social Democrats party has 26.7% (vs. 24.4%) and the Freedom Party (FPO) has 27.4% (vs. 26%). A renewed coalition between OVP and SPO is seen as less likely, which makes the far right, anti-immigrant and euro-sceptic FPO party in a strong bargaining position when forming the next coalition government. This would mark the FPO’s first return to government since 2005. It will be interesting to see what a potential OVP & FPO tie up would mean for Europe on issues such as immigration and deeper EU integration.
  • Merkel’s CDU party has likely suffered the worst election result since 1959 in the northern state of Lower Saxony (home state of Volkswagen with 7.8m people). The Social Democrats Party (SPD) was the big winner, with official preliminary results putting the SPD as winning 36.9% (+4.1ppt from 2013) of the votes, while Merkel’s party came second, wining 33.6% (-2.6ppt). The loss is unlikely to shift the power mix at the state level as the Social democrats and the Green already govern the state, but the softer sentiment for her party could have follow on implications ahead of Merkel’s talks with potential coalition partners (likely the Greens & FDP) this week, in order to form the next federal government.
  • UK PM May is expected to travel to Brussels and meet with EC Commission President Junker and Chief Brexit negotiator Barnier for Brexit talks today. According to her office, the trip has been in her agenda for some time, but has only now been publicly announced. We wait and see whether her efforts will improve the chance of some resolution ahead of the EU Summit meeting later this week. Tomorrow’s Euro and UK CPI will be a focal point as will the 57 S&P 500 companies reporting. Today, Spain and Catalonia will be back in the spotlight with Catalan President Puigdemont due to face a deadline to clarify to the Spanish Government Catalonia’s position on independence.
  • On the US fiscal front, optimism and pricing of a deal has again faded but the next key step is the adoption of a budget by the Senate (expected to be later this month), which should be followed by a House-Senate conference to agree on a common FY18 budget. The base case is that the House will converge towards a plan consistent with the Senate’s USD1.5 trillion deficit target (relative to the CBO baseline) and appease deficit hawks with the prospects of higher growth reducing the deficit relative to this target. The final tax reform is more likely to amount to a more modest tax cut with a relatively limited impact on GDP. However, the increase in deficits will still be relevant to bond markets from a flow perspective.
  • Equities (S&P +0.09%, Stoxx 600 +0.29%) edged higher back towards their record highs. Within the S&P, HP rose 6.42% post results, while bank results were mixed with WFC down 2.75% following an unexpected $1bn legacy legal charge and softer revenue trends, while BofA gained 1.49%, partly due to improved cost discipline.
  • Bond markets were broadly firmer following the US CPI miss and stronger than expected retail sales. Core bond yields fell 4-5bp at the 10y part of the curve (UST: -4.5bp; Bunds -4.1bp; OATs -4.6bp), but Gilts underperformed (-1bp). The US dollar index was broadly flat (+0.04%) while Sterling gained 0.17% but the Euro dipped 0.08% versus the Dollar. In commodities, WTI oil rose 1.68% following reports of lower US crude stockpiles, and continues to edge higher this morning as fighting broke out between Iraqi and Kurdish forces near Kirkuk. Iron Ore rallied 4.06%to $62.53/ton following China trade figures that showed a three year high for monthly ore imports.
  • Excluding the CPI miss, other US macro data were broadly stronger than expected. The September retail sales (ex-auto & gas) beat expectations at 0.5% mom (vs. 0.4% expected), while the University of Michigan’s October consumer confidence also beat at 101.1 (vs. 95 expected). Elsewhere, the August business inventories print was in line at 0.7% mom. In Europe, the final readings of September CPI for Germany and Italy was unrevised, at 1.8% yoy (flat mom) and 1.3% yoy respectively.

 

Economic Calendar Releases

  • 3-Yr Note Settlement, 10-Yr Note Settlement, 30-Yr Bond Settlement
  • Empire State Mfg Survey: Empire State’s sample continues to report exceptionally strong activity, at 30.2 for general conditions in October which was last matched in September 2014 and last exceeded in October 2009. Shipments are the standout in today’s report, at 27.5 for the highest reading since again in October 2009. Employment also shows unusual strength, up 15.6 for a sharp 5 point gain on the month to indicate the strongest rate of hiring since March 2015. Order readings show less strength with new orders down nearly 7 points from September but at 18.0 still no less than robust. Unfilled orders, depleted by shipments, still rose but only slightly at 2.3. Delivery times, which had slowed abruptly during September’s hurricane disruptions to the supply chain, are improving significantly this month while input prices, though still rising at a very hot 27.3 are down 8.5 points. The sample also continues to report traction for selling prices, at a constructive index of 7.0 though down from September’s 13.8.

Today’s results point to similar strength for Thursday’s Philly Fed report which, like this one, has been posting unusually strong results all year. It’s important to remember that diffusion indexes offer only rough assessments of activity and in Empire State and Philly Fed are based on relatively small samples where responses are always voluntary. And the rare strength of these samples has yet to be matched by the government’s factory data out of Washington which have been mostly solid with, however, noticeable areas of weakness. Watch on tomorrow’s calendar for the industrial production report where the manufacturing component has managed only 1 gain in the last four reports with 2 sharp declines.
  • 4-Week Bill Announcement, 3-Month Bill Auction, 6-Month Bill Auction
  • Treasury Budget: Ten months into fiscal year 2017, the government’s deficit in July was tracking 10.6 percent above fiscal year 2016. The spending side is where the red ink lies with increases in Social Security payments and net interest. Higher receipts, led by individual income taxes, are only a partial offset to the rise in spending. The Econoday consensus for August is calling for a $3.0 billion surplus. Note the exact day of this release is still undetermined.
  • Fed Speaks:
    • Minneapolis Federal Reserve Bank President Neel Kashkari to participate in moderated Q&A at G100 Dinner and Discussion in Minneapolis, with audience Q&A.

 

Our Analyst’s Technical Commentary

SPXWeekly Chart

  • The S&P 500 is in a clear uptrend. It, however, formed a doji candlestick pattern last week, which shows a lack of conviction among the market participants. On the weekly chart, the RSI has entered into the overbought zone, which has generally resulted in some kind of a correction in the past.
  • Therefore, a small dip from the current levels is expected. However, this doesn’t alter the upward trend because the index continues to make higher highs and higher lows. Only on a break below 2480 will the index indicate some weakness. Until then, the dips are likely to be bought.

Daily Chart

  • On the daily chart, the resistance from the channel line is clear. The index has been consolidating near the highs for the past few days, unable to breakout. On Friday, the index closed at 2553.17 with gains of 0.09%. The total intraday range was only 5.56 points.
  • This small range of trading is unlikely to continue for a long time. Very soon, one side will emerge victorious and the index will either rally above 2560 or dip down to 2525.
  • If buyers manage a break above 2560, a quick rally to 2600 is likely. On the other hand, if the sellers emerge stronger, a fall to 2525 and thereafter to 2490 is possible.
  • Considering the possibility of a fall, we are selective with our purchases. However, as the index is still quoting near the highs, we continue to search for attractive buying opportunities.

Market Data

  • 1737 stocks advanced on the NYSE; 1186 stocks declined. 262 stocks made new 52-week highs; 30 stocks made new 52-week lows.
  • 1391 stocks advanced on the Nasdaq; 1509 stocks declined. 234 stocks made new 52-week highs; 44 stocks made new 52-week lows.

Intraday Chart

  • While the market managed to record a new intraday lifetime high in the initial few minutes of trade, it could not sustain the momentum. By the second half of the trading day, the index fell back below the 2555 levels, which shows a stiff resistance and profit taking by the nervous participants at higher levels.
  • Today, any rally will face resistance at 2558, whereas, a fall will find support at 2548 levels.

Glossary:

  1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
  2. Ascending triangle pattern– is a bullish formation that usually forms during an uptrend as a continuation pattern.
  3. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
  4. Break– a rapid and sharp price decline
  5. Breakdown– price movement through an identified level of support, which is usually followed by heavy volume and sharp declines
  6. Breakout– a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
  7. Candlestick– a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
  8. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
  9. Descending Triangle pattern– A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
  10. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
  11. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
  12. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
  13. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
  14. Inside Day formation– A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
  15. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
  16. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
  17. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
  18. Rounding Top pattern– is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
  19. Support Level– refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.

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10/16/17

  • According to FT, rising investor optimism and risk appetites suggest that investors have started falling in love with what is often called the “most hated bull market” in history. One of the main factors supporting the rally is the synchronized global economic recovery. In the second quarter, global GDP grew at its fastest clip since 2010, with recovery across developed as well as developing nations. In its latest “World Economic Outlook” the IMF raised its forecast for global economic growth to 3.6% in 2017 and 3.7% in 2018, up from 3.2% growth posted in 2016. “The current global acceleration is also notable because it is broad-based—more so than at any time since the start of this decade,” said the IMF’s chief economist. “But the recovery is not complete: while the baseline outlook is strengthening, growth remains weak in many countries, and inflation is below target in most advanced economies,” according to the report.

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  • There weren’t too many losers on Wall Street Thursday as the Dow finished the day higher by 113.75 or 50 bps at 22,775.39. The S&P 500 outpaced the mega cap index by a few steps, adding 14.33 or 56 bps at 2,552.07. The NASDAQ finished the day higher by 50.73 points or 78 bps at 6,585.36. The small caps of the Russell 2000 lagged behind a little, up just 4.32 points or 29 bps at 1,512.09.
  • It was more-or-less a flat week for U.S. equities as low volatility continued to be the name of the game for American stocks. Earnings season is now underway though, so company reports look to dominate the headlines for the next few days at least, potentially setting the tone as we get into November.
  • Both Citigroup and JP Morgan reported earnings before the bell today, setting off the initial wave of giant financial company earnings reports which will continue tomorrow as well. Both of the companies reported solid beats on the bottom line, but shares reacted negatively nonetheless. Investors appear to be keying in to some sluggish trading results for both companies, particularly in the fixed income market. Both banks saw double-digit percentage declines when compared to the year ago period here, so it seems as if lower volatility levels are taking their toll on some aspects of bank profits, or at least investor perception of future earnings potential. Obviously, this doesn’t set up things nicely for the rest of the banking sector, nor does the recent move lower in yields. It will be up to the rest of the space tomorrow to right the ship, but it is hard to have too much confidence given how things have gone out of the gate here.
  • It was a pretty surprising jobs report, as the economy actually lost 33,000 jobs for the month of September. This was in stark contrast to projections of a 100,000 increase and was the first such loss for the market in seven years. However, we also saw the unemployment rate decline yet again, hitting just 4.2%. The real big surprise was that average hourly earnings surged by 0.5% in month/month terms, and we are now running at a healthy 2.9% clip for year/year. It is important to remember that the hurricane impact is likely pretty heavy in this release, so we have to take everything with a grain or really a nice helping, of salt.
  • Some people seem to think that this shows that the Fed is behind the curve from an inflation perspective, but we are not too sure. The quality of the data was so poor that we don’t see how any conclusions can be made for it on the month. People seem to be willing to discount the headline number but are focused on and believing in the wage gains, and that doesn’t make any sense to us. That is especially the case given that low wage jobs were particularly hard hit in the most recent jobs numbers. Leisure and hospitality saw 111,000 jobs lost for the month, far and away the worst category, but also one that is jam-packed with low wage jobs. With such a big reduction here, we are skeptical of the wage numbers and don’t buy in that this forces the Fed’s hand by any means. So, we don’t believe that the case for a bunch of rate hikes is a done deal, we still need more data.
  • Many Fed members continue to say that with unemployment so low inflation must rise, but we haven’t seen that be the case for years now. Perhaps the models are just built for a different time and different economic environment? This has long been our assumption and it is why we remain believers that we aren’t due for a run of rate hikes in the near-term. As it says in the article we found interesting, “ A low unemployment rate of 4.4% tells Fed officials that the US job market is near full employment and therefore that wages — and inflation — should be rising. Instead, both indicators have been at best stagnant over time, confounding economists who fail to look deeper into the labor market’s underlying woes — low participation, low-paying jobs, high underemployment, part-time employmentThe globalized job market and the rise of the sharing economy are two factors in this trend, and it may be what is preventing the recover, and inflation, that so many think is right around the corner.

 

Economic Calendar Releases

  • Consumer Price Index: Moderation in both housing and medical costs is the dovish story behind September’s consumer price report, factors that held down the core rate to a lower-than-expected 0.1 percent gain. The core excludes food and also energy which spiked a hurricane-driven 6.1 percent to lift the overall rate to an outsized looking 0.5 percent. But it’s the fundamental costs that look soft in September’s report. Housing rose only 0.2 percent in the month, which is half of August’s gain, with the closely watched owners’ equivalent rent component slowing 1 tenth to 0.2 percent. Medical care actually went into reverse at minus 0.1 percent. Prescription drugs were very soft here, down 0.6 percent with nonprescription drugs down 1.4 percent. Apparel is also in the negative column at minus 0.1 percent to end a positive run of gains while both new and used vehicles fell, down 0.4 and 0.2 percent respectively. Positive traction includes wireless services which have been moving in reverse most of the year though posting a 0.4 percent September rise. Recreation posted a 2nd straight 0.2 percent gain while food was a non-factor once again, up 0.1 percent. Year-on-year rates won’t be alarming the hawks at the FOMC, down 1 tenth to 2.2 percent overall and holding, for a 5th month in a row, at a subpar 1.7 percent for the core. This report, which did show pressure in August, is not showing the same pressure in September and offsets, at least to a degree, the significant signs of wage pressures in September’s employment report. Today’s report will soften the inflation debate at the month-end FOMC. The Department of Labor is downplaying any hurricane impacts on the report though it does note that data collection in Florida was impacted slightly. The 0.2 percent gain for core consumer prices was perhaps the most important economic data coming out of the month of August. Though it didn’t translate into strength for the Federal Reserve’s preferred inflation reading, core PCE prices, it did foreshadow an outsized September gain and upward revisions for wages (average hourly earnings). Forecasters don’t see a major gain for September’s core CPI, at a consensus 0.2 percent repeat, but they do see energy-related strength for the overall CPI where the consensus is 0.6 percent in what would follow a 0.4 percent gain in August that also was boosted by higher fuel costs. Year-on-year rates are expected to rise, to 2.3 percent overall in what would be a 4 tenths increase and 1.8 percent for the core in what would be a 1 tenth improvement.
  • Retail Sales: Hurricane effects inflated the headline gain for the September retail sales report which nevertheless does show fundamental strength. Total retail sales surged 1.6 percent as vehicle sales, reflecting replacement demand following Hurricanes Harvey and Irma, surged 3.6 percent. Gasoline sales, up 5.8 percent, are also a factor here reflecting the spike in pump prices following Harvey. Yet after stripping out autos and gas, retail sales still managed a very strong 0.5 percent gain. Restaurants are a key positive, jumping 0.8 percent in the month to reverse a run of weakness in prior months. Two possible hurricane-related gains are grocery stores, up a rare 1.0 percent in the month, and building materials which spiked 2.1 percent. But the Commerce Department, which compiles this report, made no comment on any direct effects from the hurricanes. Control group sales, which exclude autos, restaurants, building materials, and gas, are another core measure and are also very positive, up 0.4 percent. The economy is at full employment and wages are on the rise which are strong positives for consumer spending. Today’s report marks a very strong finish for third-quarter consumer spending and will encourage FOMC policy makers to raise rates at their coming meetings. In recent history, replacement demand made for one-time strength in unit auto sales during September and together with a major lift from higher gasoline prices are expected to drive a rare 1.8 percent gain for total retail sales. When excluding autos, the expected gain remains formidable at 0.8 percent though when excluding autos and gas, expectations fall to 0.4 percent. Control group sales offer a more steady reading on underlying trends and here the consensus is very modest, at 0.2 percent. Note that sales in August were unusually weak and will make for easy monthly comparisons: down 0.2 percent overall, up 0.2 percent ex-auto, down 0.1 percent ex-autos ex-gas, down 0.2 percent for the control group.
  • Fed Speaks:
    • Boston Federal Reserve Bank President Eric Rosengren will give opening remarks at the Boston Fed’s 61st Economic Conference “Are Rules Made to be Broken? Discretion and Monetary Policy”, in Boston.
    • Federal Reserve Chair Janet Yellen will join People’s Bank of China Governor Zhou Xiaochuan, Bank of Japan Governor Haruhiko Kuroda, and European Central Bank Vice-President Vitor Constancio to speak on “The Global Economy: Prospects for Broad-Based Growth” at the 32nd Annual G30 International Banking Seminar in Washington, with audience Q&A.
    • Chicago Federal Reserve Bank President Charles Evans to participate in a moderated discussion at the 7th Annual Wisconsin Summit on Financial Literacy in Green Bay, Wisconsin, with audience and media Q&A.
    • Dallas Federal Reserve Bank President Robert Kaplan to participate in a moderated Q&A session at 2017 CFA Institute’s Fixed Income Management Conference in Boston, with audience Q&A.
    • Federal Reserve Governor Jerome Powell will deliver keynote address at the Boston Fed’s 61st Economic Conference, “Are Rules Made to be Broken? Discretion and Monetary Policy,” in Boston.
  • Business Inventories: Business inventories climbed in advance data as companies tried to keep up with rising sales during August. After a modest 0.2 percent July build, business inventories are expected to rise by 0.7 percent in August led by unusual strength at the wholesale level.
  • Consumer Sentiment: The consumer sentiment index showed only modest impact from Hurricanes Harvey and Irma in September when the index fell 1.7 points to what is a still very strong 95.1. Expectations are calling for a resumption of gains, to a consensus 95.4 for the preliminary October index. However inflation expectations, which are watched closely by FOMC policy makers, have been a key negative, unchanged at 2.7 percent in September despite gains in wages and hurricane pressures in gasoline prices.
  • Baker-Hughes Rig Count
  • Treasury Budget: September’s Treasury budget will wind up the government’s fiscal year 2017 which, in August, was tracking 8.8 percent wider than fiscal 2016. The Econoday consensus for September is for a $3.0 billion surplus which would compare with a $33.4 billion surplus in September last year.

Our Analyst’s Technical Commentary

SPX – Daily Chart

  • The index is finding it difficult to breakout of 2560 levels. The S&P 500 fell 0.17% to close at 2550.93. The total intraday range was 7.02 points.
  • The index is at an important crossroad. If the index breaks below the 2540 levels, it is likely to extend further towards the 20-day EMA. We expect buying support to emerge around the 2525 levels. If, however, the index breaks below the 20-day EMA, it will extend its fall to 2520 and 2480 levels. On the other hand, a breakout above 2560 will resume the uptrend and a move to 2600 is likely.
  • The broader market continues to remain marginally favorable for buyers. However, we remain cautious at these levels. We continue to take partial profits on existing positions since we expect a pullback soon.

Market Data

  • 1541 stocks advanced on the NYSE; 1383 stocks declined. 222 stocks made new 52-week highs; 32 stocks made new 52-week lows.
  • 1217 stocks advanced on the Nasdaq; 1676 stocks declined. 223 stocks made new 52-week highs; 41 stocks made new 52-week lows.

Intraday Chart

  • Yesterday the index faced considerable resistance at 2555 levels. Selling at the resistance has again pushed the S&P 500 below the 2552 levels.
  • Today, if the index fails to breakout of 2552, a fall to 2545 and 2542 is likely. Once the index breaks below 2544, we can expect a deeper correction towards 2525 in the next few days.
  • However, if it breaks out of 2555, a move to 2560 is likely.

Glossary:

  1. Ascending Channel – An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
  2. Ascending triangle pattern– is a bullish formation that usually forms during an uptrend as a continuation pattern.
  3. Bearish Engulfing pattern – chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or “engulfs” the small white one.
  4. Break– a rapid and sharp price decline
  5. Breakdown– price movement through an identified level of support, which is usually followed by heavy volume and sharp declines
  6. Breakout– a price movement of a security through an identified level of resistance, which is usually followed by heavy volume and an increased amount of volatility.
  7. Candlestick– a chart that displays the high, low, opening and closing prices of a security for a specific period. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price.
  8. Correction – a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation; generally temporary price declines interrupting an uptrend in the market or an asset; shorter duration than a bear market or a recession, but it can be a precursor to either.
  9. Descending Triangle pattern– A bearish chart pattern that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
  10. Doji – candlesticks that look like a cross, inverted cross or plus sign; forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts
  11. Double top – technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
  12. Gravestone doji – a type of candlestick pattern that is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
  13. Head and Shoulders pattern – a chart formations that predicts a bullish-to-bearish trend reversal; believed to be one of the most reliable trend reversal appears. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
  14. Inside Day formation– A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.
  15. Long legged doji – a type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset.
  16. Relative Strength Index – (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally RSI is considered overbought when above 70 and oversold when below 30.
  17. Resistance – a price point on a bar chart for a security in which upward price movement is impeded by an overwhelming level of supply for the security that accumulates at a particular price level.
  18. Rounding Top pattern– is identified by price movements that, when graphed, form the shape of an upside down “U”; may form at the end of an extended upward trend and indicates a reversal in the long-term price movement; considered a rare occurrence.
  19. Support Level– refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.

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