CNBC has revised their Option Action show which is aired every weekday night at 5:30. They have really beefed up the Friday show to the point that we think it is one of the best option oriented shows on the air. Check it out.
The following is an excerpt from this week’s ‘Weekly Market Letter’ from Market Edge (www.marketedge.com).
Stocks Slump Into November
All eyes were on the Fed Meeting this week and stocks struggled with a more hawkish statement from Fed Chair Jerome Powell that pointed to higher rates for longer. The Federal Reserve bumped rates 0.75-point to battle inflation as expected, but the major averages went on a four-day losing streak on fears policy would send the economy into a recession. The yield on the 10-year T-Bill hit 4.21%, its highest level since 2007, before landing at 4.16%. Also weighing on stocks was better-than-expected economic and jobs data that showed a resilient US economy and tight jobs market. Mixed earnings did little to prop up prices as blow out numbers from Uber Technologies (UBER), BP (BP), Pfizer (PFE), Amgen (AMGN) and Starbucks (SBUX) were offset by disappointing results from Roku Inc. (ROKU), Qualcomm (QCOM), Estee Lauder (EL), Twilio (TWLO) and PayPal (PYPL). Big cap technology shares weakened on higher rates and the NASDAQ dropped -759.51-points (-6.8%) before a bounce on Friday, while the DJIA was down 860.55-points (-2.6%) before its turnaround.
Softer commentary from different Fed Presidents on Friday helped snap the markets losing streak as Boston’s Fed President Susan Collins noted that rates would remain higher for longer, but smaller increments will be appropriate. Chicago Fed President Charles Evans conferred saying 0.25 to 0.50-point hikes going forward would be in order. Crude oil prices were higher during the period on a report that China could end its zero-covid policy by March 2023 creating more demand. Oil prices finished the week at $92.62 a barrel, boosting oil related shares, and the Energy (XLE) sector hit a new all-time high on Friday. The Materials (XLB) and Industrials (XLI) sectors also posted positive. The Technology (XLK) and Communication Services (XLC) were the weakest sectors, each down more than -6.5%. The Communication Services ETF, which includes Meta Platforms (META) and Alphabet (GOOGL), fell to its lowest level since April 2020, while Meta Platforms, previously Facebook, erased its gains going back to 2015! Following the DJIA’s strongest month since January 1987, despite Friday’s flurry, the Dow Jones snapped its four-week win streak, while the S&P 500 and NASDAQ closed lower for the first time in three weeks.
For the period, the DJIA fell 458.58 points (-1.4%) and settled at 32403.22. The S&P 500 gave up 130.51 points (-3.3%) and closed at 3770.55. The NASDAQ tumbled 627.20 points (-5.6%) finishing at 10475.25. The small cap Russell 2000 lost 47.05 points (-2.5%), finishing at 1799.87.
Market Outlook: The technical condition of the market deteriorated as the major averages failed at resistance and broke back below key support levels. The technical indicators slipped back into neutral territory for most of the different indexes but remained bullish for the DJIA and small cap Russell 2000. After rising above its 200-day MA last week for the first time since a brief overlap in August, the DJIA was unable to hold that level, and despite Friday’s bounce, closed back below it. The S&P 500 failed at resistance at its 100-day MA and fell back below its 50-day MA, but managed to hold 3700, a small victory for the bulls. The NASDAQ underperformed the broader market and nearly erased the October gains before rebounding on Friday. The Russell 2000, like the DJIA, ran into resistance at its 200-day MA and after sliding back bounced off its 50-day MA and closed just above its 100-day MA. There was also deterioration in the different sectors, but they remain mixed. While Energy (XLE) punched a new all-time high during the week, only Healthcare (XLV) remained above its 200-day MA, but Industrials (XLI) and Materials (XLB) still have positive chart patterns. Consumer Staples (XLP), Financial (XLF) and Utilities (XLU) are below their respective 200-day MA but above their 50 and 100-day MA and are rated Neutral. After showing positive divergence the last few weeks, underlying breadth weakened with the NYSE and NASDAQ Advance/Decline lines sliding lower showing stocks are under distribution and the number of new 52-week lows expanded during the week. Investor Sentiment was mixed with retail investors showing a small uptick in bullishness, while the professionals were little changed after increasing exposure to equities leading up to the FOMC Meeting.
A chart of these indicators can be found by going to the Market Edge Home page and clicking on Market Recap, which is on the right-hand side of the page just below the Second Opinion Status numbers.
Cyclical Trend Index (CTI): The underlying premise of the CTI is that the market, as measured by the Dow Jones Industrial Average (DJIA), tends to move in cycles that often resemble sine waves. There are five identifiable cycles, each with different time durations at work in the market at all times. Currently, the CTI is Positive at +10, unchanged from the previous week. Cycles A, B, C are bullish, while Cycles D and E are bearish. The CTI is projected to remain in a positive configuration into December.
Momentum Index (MI): The market’s momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish.
The Momentum Index is Negative at -4, unchanged from the previous week. Breadth was negative at the NYSE as the Advance/Decline line lost 649 units while the number of new 52-week lows exceeded the number of new highs on four sessions. Breadth was also negative at the NASDAQ as the A/D line fell 2136 units while the number of new lows out did the new highs on each day. Finally, the percentage of stocks above their 50-day moving average eased to 45.7% vs. 48.1% the previous week, while those above their 200-day moving average increased to 27.8% vs. 27.4%. Readings above 70.0% denote an overbought condition, while below 20% is bullish.
Sentiment Index (SI): Measuring the market’s Bullish or Bearish sentiment is important when attempting to determine the market’s future direction. Market Edge tracks thirteen technical indicators listed below that measure excessive bullish or bearish sentiment conditions prevalent in the market. The Sentiment Index is Positive at +3, unchanged from the previous week. In addition, we track money flows into and out of Equity Funds and ETFs which as of 11/02/22 shows inflows of $9.6 billion. That’s a third straight week of positive inflows.
Market Posture: Based on the status of the Market Edge, market timing models, the Market Posture is Bullish as of the week ending 10/21/2022 (DJIA – 31082.6).
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