Market Recap for Thursday, October 8, 2015
One very good thing has emerged lately with respect to the U.S. stock market. It trends higher into the close and afternoon buying is generally healthy market action. The S&P 500 has now finished higher 7 of the last 8 trading sessions and action into the close has been strong for the past 7 days. Until this behavior changes, the bears are likely to find this environment difficult at best. Below is a picture of this consistent end of day strength using an intraday chart:
There are still issues with this rally, however, beginning with the fact that money is rotating away from the aggressive indices and sectors. For instance, only industrials were among the four best sectors on Thursday and both technology and financials badly lagged, edging out healthcare which again ended at the bottom of the sector heap.
Pre-Market Action
There will be little in the way of news today so traders will be focused on happenings overseas and paying close attention to technical conditions. As we begin the day, we truly have a mixed bag of conditions. Leadership in this rally isn't the kind I'd typically like to see. The intraday 60 minute charts still show negative divergences across all of our major indices and most sectors and industry groups. The daily charts, though, show a nice uptrend now in place on solid volume, clearing key 20 day EMAs. In fact, those 20 day EMAs are turning up and that suggests momentum could be on the verge of sustaining the current 6 1/2 year bull market. Then we shift to the weekly charts and major technical headwinds are facing us TODAY. See the Dow Jones weekly chart in the Current Outlook section below for further discussion.
All in all, it's going to be a very interesting day.....and probably a very interesting next couple weeks. Stay tuned.
Current Outlook
The 10 year treasury yield ($TNX) spiked on Thursday as traders were bailing out of treasuries throughout the day. Even while equities struggled during the first half of the session, treasuries sold off right along side them. That enabled the yield to continue its march higher after the recent trendline breakout. Take a look:
The short-term bullish action in equities is being aided by money rotating away from treasuries. But those who are banking on this being part of a bear market are likely pointing to the bigger picture where we've seen significant technical deterioration on weekly charts. Let's take for example the blue chip Dow Jones ($DJI) index. Price action crumbled beneath moving average support in August and now we're seeing a very significant test of falling 20 week EMA resistance. In a bear market, these attempts typically fail. Check this out:
I do remain overall bullish the stock market, but with the second half historical headwinds in October approaching and key resistance overhead on the long-term chart, it's difficult to be aggressive on either the long or short side.
Sector/Industry Watch
In sticking with the long-term theme just discussed on the Dow Jones, let's take a look at the financial (XLF) sector chart. After rallying more than 3% this week, it's setting up for a critical test of its declining 20 week EMA as well. Take a look:
Historical Tendencies
October 9th (today) happens to represent one of the worst historical days in October with the S&P 500 producing an annualized return of -86.07% on this day since 1950. It's not a coincidence that the 9th is bad in October, though. The 9th day of ALL calendar months trails only the 19th in terms of the worst calendar day of the month to own U.S. equities.
Key Earnings Reports
INFY: .22 (estimate)
Key Economic Reports
August wholesale trade to be released at 10:00am EST: +0.1% (estimate)
Please enjoy your weekend everyone and happy trading!
Tom
