Market at a Glance - 10/29/2015

By: Christopher Mistal

October 29, 2015

Psychological: Skeptical. Despite the market’s strong October performance, Investors Intelligence Advisors Sentiment survey is showing bulls at 43.7%, bears at 29.2% and correction at 27.1%. This is essentially a neutral reading. Since late September bulls have been climbing slowly while bears and correction have been falling slowing. A slow reversal from the high levels of bearishness at the end of September suggests there is still plenty of cash on the sidelines and the market still has room to run higher.

Fundamental: Mixed. Corporate earnings continue to feel the pressure of lower commodity prices and a stronger U.S. dollar. There have been some notable misses, like Walmart (WMT) and IBM (IBM) and some notable homeruns like Amazon (AMZN), Alphabet (GOOG) and Microsoft (MSFT). Tepid growth, Q3 GDP of 1.5% in the third quarter, only further broadens the divide between hits and misses as the “rising tide” is not rising that quickly leaving the less nimble behind.

Technical: Improving. DJIA, S&P 500 and NASDAQ have all successfully completed a “W” or 1-2-3 bottom chart pattern. DJIA has fully recovered from its mini waterfall decline in August while S&P 500 and NASDAQ are on the cusp of doing the same. Once rapidly declining 50-day moving averages are now beginning to flatten and turn the corner towards higher. This all improves our comfort level with our bullish outlook for the rest of 2015 and Q1 2016. In the near-term, the markets rapid rise this month has stretched Stochastic, relative strength and MACD indicators to the verge of overbought levels increasing the odds of a brief period of consolidation or weakness.

Monetary: 0-0.25%. Another Fed meeting, another kick-of-the-rate-increase-can. Perhaps the best argument for raising interest rates now (or even in the foreseeable future) is the current range was an emergency measure and the emergency is over. Year-over-year, seasonally adjusted CPI has been between 0.2% and –0.2% since January 2015. This is well below the Fed’s 2% target. Sure the headline unemployment rate has a “5” handle, but the labor force is currently the same size it was back in the 70’s, so just how robust is the labor market. Although the Fed is leaning toward tightening at some point, current policy is highly accommodative to the economy and the stock market.

Seasonal: Bullish. November is the first month of the “Best Six Months” for DJIA and S&P 500 and NASDAQ’s “Best Eight Months.” DJIA and S&P 500 have average gains of 1.5% since 1950 in November and NASDAQ has averaged 1.6% since 1971. However, in pre-election years, November’s performance is substantially weaker. DJIA has advanced in only half of the last 16 pre-election years since 1950 with an average gain of 0.3%. S&P 500 has been up in 9 of the past 16 pre-election years, also gaining on average a paltry 0.3%. Small-caps and techs perform better with Russell 2000 climbing in 5 of the past 9 pre-election years, averaging 1.0%.