Market Trips On Bearish Crossover

Commentary

Well, that was interesing. Equity markets opened higher with the support of positive news and economic data which seemed to counter any bearish fundamentals clouding the future trajectory of the market, e.g. uncertainty and disruption of business; increasing layoffs; and failure of lawmakers to reach an agreement on stimulus aid before the Nov-3-2020 presidential election. All of the above fundamentals emanate from the Covid19 pandemic, which looks to become worse before getting better.

(Incidentally, the Wall Street reported that the US budget gap tripled to a record $3.1 trillion ins Fiscal-2020, which is roughly equivalent to 16.1% of our nation’s economic output. The culprit for this 47% increase in government spending is of course the Coronavirus. For the first time in 7 decades, our Federal debt has surpassed GDP at 102%. Just something to ponder, folks…)

Bullish Events

  • Covid19: Pfizer (PFE) announced it will seek emergency authorization to approve its vaccine by late November if tests prove to be effective.
  • Industrials: The EU’s aviation authority has given approval for Boeing (BA) to recommence flying of its 737 Max aircraft by the end of this year.
  • Consumer: US Retail Sales (m/m) for Sept-2020 increased +1.9% vs estimates @ +0.7% and previous @ +0.6%. Core Retail Sales (m/m) during the same period grew +1.5% vs estimates @ +0.5% and previous @ +0.5%.
  • Consumer: Michigan Consumer Sentiment for Oct-2020 @ 81.2 vs estimates @ 80.5 and previous @ 80.4. Consumer Expectations for Oct-2020 @ 78.8 vs estimates @ 76.5 and previous @ 75.6.

Bearish Events

  • Economy: US Industrial Production (m/m) for Sept-2020 actual @ -0.6% vs estimates @ 0.5% and previous @ 0.4%. This marked its first decline in 5 months.

Today’s trading session gave mixed results. Aside from the blue chip stock indexes, i.e. SP-500 and DJ-30, sector leadership was present amongst Industrials (XLI) @ +0.73%; Healthcare (XLV) @ +0.99%; Basic Materials (XLB) @ +0.70% and Utilities (XLU) @ +1.07%. Lagging sectors were Energy (XLE) @ -2.27%; Consumer Discretionary (XLY) @ -0.91%); as well as the key industry group Homebuilders (ITB) @ -1.05%.

Market Summary

Benchmark IndexPrice1D-Chg
SP-5003,483.81+0.47 / +0.01%
Nasdaq-10011,852.17-46.40 / -0.39%
DJ-3028,601.31+112.11 / +0.39%
Russell 2K1633.81-5.07 / -0.31%
US Dollar93.71-0.08 / -0.09%
Euro1.17133+0.00076 / +0.06%
Yen0.94870+0.00030 / +0.03%
10 Yr Treasury Rate0.74+0.01 /+1.37%
Gold1,898.30-9.49 / -0.50%
WTI Crude Oil40.96-0.06 / -0.15%
DJ US Real Estate321.33-2.15 / -0.66%

ETF Summary

Below is this week’s performance summary for October 12-16, 2020.

Techncial Analysis Chart of the Day

Normally, I look at longer timeframes when analyzing the markets, but today’s price action relative to the entire trading week really caught my eye. It was a classic headfake for bulls who got lulled into a consistent rhythm of an intraday lateral trend and then suddenly smart money tripped them with a crossover by sell into strength as the election draws near. In fact, most professional traders and advisors I know are standing pat on the sidelines with high allocations of cash.

Rising prices on anemic volume during today’s first hour followed by falling prices with surging volume in the final hour was merely a probe to gauge buyer demand. Should there be no positive announcements or catalysts over the weekend, I would expect selling to resume and perhaps at an even more aggressive pace.

Click image to enlarge

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