Monday, 14 October 2019

Starting subdued

US equity indexes closed a little weak, sp -4pts (0.1%) at 2966. The Nasdaq comp' and Dow both settled -0.1%. The Transports settled -0.3%.

sp'daily5



VIX'daily3



Summary

US equities began on the week on a subdued note, mostly as it was Columbus day.

Volatility was itself subdued, with the VIX settling -6.5% at 14.57. S/t outlook offers an eventual tag of (at least) the upper end of secondary downside gap to 2911. Considering Friday is OPEX, that might not occur until next week.
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Your views


It is fascinating to see that a clear majority expect an upward break.


In terms of most favoured asset class, we have an effective tie between equities and the precious metals. Bonds are still overlooked by many, and if you believe yields/rates will broadly fall into/across 2020, bonds have to seen as mid/long term super strong.

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Saturday, 12 October 2019

Weekend update - US equity indexes

It was a bullish week for US equity indexes, with net weekly gains ranging from +2.6% (Transports), +0.9% (Nasdaq comp', Dow), +0.8% (R2K), +0.7% (NYSE comp'), to +0.6% (SPX).


Lets take our regular look at six of the main US indexes (monthly candle charts).

sp'500


The SPX swung from an intra week low of 2892 to 2993, and settling +18pts (0.6%) at 2970. More broadly, price momentum remains fractionally positive, trading above the key 10MA.

Price action has been broadly stuck, as reflected in monstrous technical divergences that stretch back to Jan'2018. I would see things turning decisively bullish >3050, or bearish, with a monthly settlement under the key 10MA (currently at 2881).
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Nasdaq comp'


The Nasdaq climbed by 74pts (0.9%) to  8057. More broadly, monthly price momentum remains moderately negative, but price is holding above the 10MA.


Dow


The mighty Dow climbed 242pts (0.9%) to 26816. More broadly, monthly price momentum remains negative, but price is holding above the key 10MA.


NYSE comp'


The master index gained 95pts (0.7%) to 12926. Monthly price momentum remains fractionally negative, but price is holding above the key 10MA.


R2K


The second market leader gained 11pts (0.8%) to 1511. Monthly price momentum remains deeply negative, with price holding under the 10MA.


Trans


The 'old leader' - Transports, lead the way higher this week, +262pts (2.6%) to 10291. Monthly momentum remains deeply negative, with price holding under the 10MA.



Summary

All six US equity indexes saw net weekly gains

The Transports lead the way higher, with the SPX lagging.

More broadly, of the six indexes, four are currently trading above their respective monthly 10MA, with the R2K and Transports below.

YTD price performance:


The Nasdaq comp' continues to lead for the year, currently +21.4%. The SPX +18.5%, the Dow +15.0%, and the NYSE comp' +13.6%. The Transports is +12.2%, with the R2K +12.1%.
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Looking ahead

A very busy week is ahead, as Q3 earnings season begins. 

Earnings:


M -
T - JPM, UNH, C, JNJ, GS, WFC, SCHW, UAL IBKR, JBHT
W - BAC, ALLY, ABT, NFLX, IBM, KMI, CSX, AA
T - MS, HON, UNP, TSM, ETFC
F - KO, AXP, SLB,
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Econ-data:

M -*Columbus day* - Bond market CLOSED.
T - Empire state manu'
W - Retail sales, busin' invent', housing market index, Fed Beige book
T - Weekly jobs, housing starts, phil' fed, indust' prod', EIA Pet' & NG
F - Leading indicators, *OPEX*
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Key event: Thurs/Friday - two day EU leaders summit. It will be the last opportunity for the UK and EU to agree on some kind of deal.  https://www.bbc.co.uk/news/uk-politics-50025931

Saturday Oct'19th; An exceptionally rare weekend sitting of Parliament. If no deal with the EU can be reached, it is probable the Government will collapse, with an election called for late Nov/early Dec'.

I would assume the EU would quickly offer an extension into end 2019/early 2020, whilst an election is held. Any subsequent government (whether coalition or otherwise) could be expected to eventually offer the public a secondary referendum on whether an (eventual) deal is acceptable. I would expect the UK populace to vote against ANY such deal, and thus... remain within the EU.
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Final note

Wednesday will see QE4-phase'1 begin. Monthly QE of $60bn is not something to be dismissed lightly. Whilst I don't see rate cuts as helping to stave off a recession, throwing huge amounts of new money into the US capital markets is going to have some effect on juicing asset prices, especially stocks.

Q3 earnings can be expected to come in at least 'reasonable', whilst econ-data is likely to show further weakness. The Oct'30th FOMC will provide rate cut'3, all whilst QE4 will be well underway. Crazy times.
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Have a good weekend
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*the next post on this page will likely appear 5pm EDT on Monday.

Friday, 11 October 2019

QE4 begins next week

US equity indexes closed significantly higher, sp +32pts (1.1%) at 2970. Nasdaq comp' +1.3%. Dow +1.2%. The Transports settled +2.2%.

sp'daily5



VIX'daily3



Summary

US equities opened significantly higher, on increased hopes of a trade deal. The afternoon saw a closing hour high of 2992 (1pt below the late morning high), but then leaned distinctly weak, as initial details of 'phase one' of Trade-deal LITE, were released.

With equity strength, volatility was ground lower, settling -11.3% at 15.58. S/t outlook offers some cooling to the upper end of secondary downside gap to sp'2911.
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QE4 begins next week

On Tuesday, Powell alluded that the Fed was considering buying more US Govt' bonds. Today saw confirmation. Official press release: https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20191011a3.pdf


QE4 begins Wednesday Oct'16th...


see: https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/treasury-securities/treasury-securities-operational-details#current-schedule
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I would especially note...


The Fed sure doesn't want to call it QE, and instead deem it as 'Reserve Management Purchases'.

Lets be clear, QE4 begins next Wednesday morning, with a starting annualised rate of $720bn.


Earlier and larger than expected

I had expected at least another two rate cuts, with QE4 launching as early as late Spring 2020. Instead, the printing will resume next week, with the Fed starting pretty big at $60bn a month. I have to think that behind the scenes, the monetary masters of print central are absolutely terrified of even a mild recession.

Whilst lower rates are not going to help stave off a recession, I'm not sure if $60bn will be enough to juice the market above the next decisive level of sp'3050. As ever, how the month settles will be telling.

--
Extra charts in AH (usually around 5pm EDT) @ https://twitter.com/permabear_uk

Goodnight from London
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