Update 66: Stocks Near All-Time Highs–Where’s The Volume?
OCTOBER 25, 2019
OPTION PROFESSOR WEEKLY MARKET UPDATE
OPINION & OBSERVATIONS
THIS WEEK/NEXT WEEK
Big week for earnings this week as about 20% of S&P 500 stocks reported. Some had very good numbers (INTC) while some missed the mark (AMZN) (MMM) but on top of last week bank earnings the quarter has been not too shabby so far. Being someone who recognized the market is in a uptrend; I remain trouble by the lack of volume (SPDR about 40% below it’s 20 day moving average), the tightest trading range since 2017, and the failure (so far) for the Transports & Russell to make new highs among other things.. Encouraging signs include the VIX this week getting under 14 and closing with a 12 handle and the fact railroads (UNP), airlines (UAL) and the delivery guys (FDX) (UPS) were firming up. Also; you have Brexit, FED cut & China trade as potential short term tailwinds. The lack of volume/DJTA-RUT under highs keeps the base case as 2950-3100 as a SELL zone. NEXT WEEK..we have Monday-China industrial profits, Tues USA pending home sales & consumer confidence, Wed. FED decision & USA GDP, China PMI, Thurs. BOJ decision-Lagarde takes over ECB-Brexit deadline Fri-Jobs Data/Clarida speaks-hold on to your hats!
The market went up and touched on all time highs this week and the path of least resistance appears up. However; many companies have yet to report….FED cut expected….Jobs data expected weak…and the volume has been dodgy…plus lots of international news to be had so while it’s not wise to step in front of a moving car…..pockets of skinny volume suggests a possible binary outcome….volume comes pouring in and we blow out the highs with a potential for a 10% run or this rally lacks conviction and a roll over as earnings/jobs report/FED remarks next week get investors to run for cover..S&P 150+ above 200 day M/A.. Stay Tuned!
Is the worst over as far as economic numbers and growth and will trade deals & Brexit get done? If so the 1.4% 10 yr Treasury may be the low for the year as positioning is still very much leaning toward lower rates and surprises that instigate re-positioning may cause order imbalances. Few expect the 10 yr to surpass a 2% handle so if that happens for cause the scoreboard could lite up European countries like Italy & Greece continue to issue shorter term paper at negative yields despite dodgy fiscal situations while Argentina is talking 20% haircuts that could look like 40% or extended duration to incomprehensible dates. Leveraged Loans are showing cracks as one issuer this week had to pay 12.5% to get done….hunger for yield can be risky due to leverage and covenants Right now there seems to be a fear that if you sell a bond it may be difficult to get back in due to demand & the hunt for yield. When’s the lat time people were desperate for anything & got a good deal? Fed Wed/Data due..watch TLT & the 135 level for clues
Defined trading range on DXY about 99-95…tested the top end and rolled over…now 97.81 after hitting about 97. If we cut rates and LaGarde gets fiscal stimulus to catch on in Europe combined with a Brexit deal…lots of ifs…then the dollar could retrace further after the bounce is over..98.42 area is 50 day moving average and 96 area is the 200 day M/A…vol hits this week??
Base case is sustained prices above 60 and below 50 needed to get a hold on longer term direction…..but as stated the oil stocks like RDS.A< BP, KMI have held their ground and ARAMCO the Saudi deal may need higher prices to sweeten up the demand.
Base case remains that the breakout above 1350 led us up quickly to the 1520-1580 neighborhood which corresponded to lows since years ago. The technical overbought conditions are being worked off and the rally off last weeks lows refreshed prices. If the Oct lows can hold…it is possible Nov & Dec could see better levels as sometimes the end of the calendar year and the beginning of the new year has been a sweet spot for the metals.
Ass stated the Chinese have to eat so getting them to buy food is not a stretch…so as stated a trade able low off the mid year lows made sense…now’s the hard part..we got over resistance @ 9 but so far have failed to exceed 950 or 10..50/200 day M/A 870-880.
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