Views From The Hill

Weekly Market Wrap: October-23-2015

It Was a Most “Stimu-flating” Week

interest-ratesCentral banks are engaged in a globally coordinated effort to stimulate and inflate their respective economies. Equities responded positively and Volatility (VIX) declined against this backdrop. Treasury interest rates rose accordingly as the bond market also gave credence to the latest market noise pertaining to central banks’ grandiose plans to influence economic growth. Commodities, e.g. Gold and Crude Oil, retreated in the face of a stronger U.S. Dollar Index, while Real Estate assets also delivered a positive performance.

During the week, China reduced its interest rates and reserve requirement ratios for its major banks while Europe announced its willingness to increase QE (quantitative easing) if necessary. Meanwhile we have the Federal Reserve, the lead dog under the reins of Chairperson Yellen, and its quandary is a monetary policy bias unaligned with other major central banks while simultaneously encountering some dissension among its own ranks.

Yellen’s problem is not inflation but the lack thereof anywhere in the four corners of the earth. So, the Fed must reluctantly subordinate domestic mandates to the fragility of a global economy and seriously consider the adverse impacts, both domestically and internationally, of any rate hike it undertakes. Despite near-full employment and the emerging signs of a tightening labor market, there really is no inflation outside of real estate housing.

Weaker energy prices have also kept a lid on inflation and their price trends will remain bearish until OPEC (and the Saudis) either break or cripple the backs of the Shale oil producers in North America. Lastly, the USA no longer solely drives energy price trends. China is the second largest global consumer of oil and when its demand shrinks due to sub-par and unsustainable GDP growth, the market feels it and the world knows it.

So what are the headwinds for justification of a rate hike? They are the stronger U.S. Dollar (hat tip to Europe, China and Japan central banks) and weaker price trends in commodities. This upcoming Tuesday the FOMC begins its series of meetings and will decide its latest monetary policy on Wednesday with respect to interest rates. Until then, the markets will idle in neutral gear.

 

Index LAST 5D-Chg 5D-% 50 M.A. 200 M.A. YTD %
S&P 500 2,075.15 42.04 2.07% 1,980.19 2,060.11 0.79%
Nasdaq Comp 5,031.86 145.17 2.97% 4,794.16 4,925.45 6.25%
Nasdaq 100 4,624.09 185.47 4.18% 4,319.24 4,396.39 9.15%
Russell 2000 1,166.06 3.75 0.32% 1,150.78 1,215.90 -3.21%
DJ-30 Industrials 17,646.70 430.73 2.50% 16,674.56 17,574.56 -0.99%
DJ-20 Transports 8,295.58 216.97 2.69% 8,002.17 8,477.51 -9.24%
DJ-15 Utilities 594.41 -2.57 -0.43% 575.25 585.55 -3.83%
 
CBOE Volatility 14.46 -0.59 -3.92% 21.93 16.56 -24.69%
10-Yr Treasury Rate 2.08 0.06 2.97% 2.12 2.11 -4.15%
30-Yr Treasury Rate 2.89 0.03 1.05% 2.90 2.81 5.47%
US Dollar Index 97.05 2.32 2.45% 95.58 95.96 7.51%
Crude Oil 44.59 -2.72 -5.75% 45.03 50.70 -16.64%
Gold 1,164.04 -12.54 -1.07% 1,138.54 1,175.47 -1.69%
U.S. Real Estate Index 297.32 3.13 1.06% 283.59 297.09 -1.09%
U.S. Home Construction Index 596.00 15.72 2.71% 591.96 568.37 12.68%

 


 

Market Condition

The SP-500 has successfully tested support at least 3 times between the 1820 to 1860 range. Although it has violated its uptrend, its price action history over the last 10 months has been more characteristic of  consolidation pattern and I would look for it to retest resistance at its previous 52-week high levels. The market is a bit overextended and overbought, but it has momentum on its side as 81% of the SP-500 components trade over their 20 day moving average and 76% of them are above their widely followed 50-day moving average.

 

sp500-weekly-10-23-2015
Click to enlarge

 


 

SP-500 Support & Resistance Pivots for October 26-30, 2015

 

S3 S2 S1 Pivot R1 R2 R3
1935.32 1994.86 2035.00 2057.37 2097.51 2119.88 2182.39

 


 

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