Market Action Summary: 10/22/18


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S&P 500 Overview: Further Downside Grows Likely

  • S&P 500 consolidating below long-term trend line.
  • Unlike Feb selloff, Market wasn’t overbought in September.
  • Bearish divergence on S&P 500 in September. “False breakout?”
  • S&P 500 hugging 200-day MA instead of bouncing from it.
  • Sector mix is bearish as safe havens like XLU outperform (despite rising rates)
  • Hard to time because of earnings, GDP. Seasonality favorable.
  • Little earnings enthusiasm yet.

Don’s Earnings Watch List:

  • 10/23: McDonald’s (MCD)
  • 10/23: United Technologies (UTX)
  • 10/24: Microsoft (MSFT)
  • 10/25: Alphabet (GOOGL). (AMZN)

Russell’s Watch List:

Is Goldilocks Still in the Building?

  • Industrials squeezed by China trade war: CAT, AOS, GWW
  • Little sign of Trump trade war ending soon. Strong economy favors punishing Wall Street, favoring Main Street.
  • What happened to Honeywell (HON)?
  • Railroads & suppliers fall despite good earnings. Traffic growth slows under +2%.
  • Backdrop of strong employment good for workers, increasingly not good for companies. It’s also making the Fed more hawkish.
  • Secular shift of economy away from retail spending on merchandise means less pass-through from wages to corporate earnings.
  • Reaction to GDP on 10/26, non-farms on 11/2 could be bearish either way. Strong numbers could be hawkish. Weak numbers may trigger slowdown fears.

Calls of Note:

  • “Buy the dip”: Kolanovic of JPM, Kostin of GS, Saut of Raymond James
  • Wilson of MS wary of growth stocks.
  • Acampora: More downside amid failed rallies.
  • Fink of Blackrock: Huge outflows before recent drop.
  • Jeremy Siegel of Wharton sees flat 2019 as interest rates rise.
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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.