Market at a Glance - 10/25/2018

By: Christopher Mistal

October 25, 2018

Psychological: Persistent. According to Investor’s Intelligence Advisors Sentiment survey bulls are still at 50.5%. Correction advisors are at 30.5% and Bearish advisors are just 19.0%. Even after DJIA and S&P 500 gave back nearly all year-to-date gains over 80% of advisors surveyed still expect nothing more than a correction. It’s hard to argue with a trend that has been in place for nearly a decade. Absent a significant reversal in economic data, the current pullback is likely to turn out like every other since the March 2009 low, a good buying opportunity.

Fundamental: Firm-ish. U.S. labor market remains quite firm with unemployment at just 3.7%. U.S. GDP is also solid with the Atlanta Fed’s GDPNow model forecasting 3.6% growth for Q3. But, there are a few signs of cracks beginning to form. Housing market and auto sales data has been disappointing. Q3 corporate earnings have also been something less than expected. Share buybacks and tax cuts have boosted earnings, but revenues have been on the light side of expectations at more than just a few companies which has some questioning the validity of 2019 estimates. Estimates remain positive, perhaps just not as high as previously thought. From current market levels and valuations there is still room to the upside.

Technical: Broken. DJIA, S&P 500 and NASDAQ have all sunk below their 50- and 200-day moving averages. Relative strength, Stochastic and MACD indicators are all negative. Without a quick rebound back above 200-day moving averages, lows from earlier in the year could be in play. 2018 lows to watch: DJIA 23533, S&P 500 2581 and NASDAQ 6777.

Monetary: 2.00-2.25%. After nearly a decade of zero or near zero interest rates and highly accommodative policy, the Fed appears to have turned somewhat hawkish. Minutes of the last meeting revealed a board that sounds committed to raising rates at a nice steady pace of at least once a quarter, but the Fed’s own growth projections seem to be at odds with continuing this approach. The Fed remains the biggest risk to the market and the economy.

Seasonal: Bullish. November begins the “Best Six Months” for the DJIA and S&P 500, and the “Best Eight Months” for NASDAQ. November also marks the beginning of the best consecutive three-month span November-January. Midterm year Novembers are solid ranking near the top across the board. Our Seasonal MACD Buy signal can trigger anytime now. An email Alert will be sent after the close when it does trigger.