|NYSE||Adv 328||Dec 2648||Vol 1.07 bln|
|Nasdaq||Adv 386||Dec 2710||Vol 3.1 bln|
- S&P 500 information technology sector extends October woes, among worst-performing sectors today.
- Economic growth concerns manifested in cyclical sectors weakness.
- PPI report for September increased 0.2% as expected.
- U.S. Treasury yields push back towards multi-year highs, contributing to the widespread sell-off.
- Hurricane Michael set to hit Florida Panhandle today, oil traders watchful.
- Crude oil sells off heavily.
- U.S. Dollar closes slightly lower.
RECAP– The market sold off heavily throughout the day and into the closing bell as the S&P shed 100 points and over 3%. Crude oil sold off heavily as well (also over 3%) which serves as a sign of correlation with the equities market and a potential driver of selling in the stock market. The US Dollar had an up and down day and finished the day slightly lower.
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- October 10: PPI m/m – Actual: 0.2% Forecast: 0.2% Previous: -0.1%
- The producer price index tracks the cost of goods on the producers’ end which is usually passed on to consumers and helps track inflation.
- October 10: Core PPI m/m – Actual: 0.2% Forecast: 0.2% Previous: -0.1%
- Core PPI excludes food and energy which tend to fluctuate radically and be more seasonal.
- October 11: CPI m/m
- October 11: Core CPI m/m
- October 11: Unemployment Claims
- October 11: Crude Oil Inventories
- October 12: Prelim UoM Consumer Sentiment
FedWatch November 8 Rate Hike Probability for October 10: 2.0% (View the probability chart here)
A Look At The S&P 500 Chart – KEY Levels
- RSI is at 50 which signifies a potential changing of trend.
- On Balance Volume is below its moving average.
- The market has been on a mid-term bullish run which began in April and remains intact.
- The market tested support of 2860 which was a previous level of resistance in early August.
- The market put in a bearish pivot to end last week and gapped lower to start this week. It is currently resting on it’s 50-day simple moving average.
- The market sold off heavily throughout the day and into the closing bell. A 100+ point drop in the S&P is massive, especially as it counts as over 3% which would be considered to be a huge selloff.
- The TRIN not closing above 2.0 and momentum being consistent into the close are both signs that the selling should continue tomorrow.
A Look Into the Heat Map
The heat map looks like a blood bath as there was extreme selling exhibited throughout most sectors, with Utilities, the safe-haven, being the least underperforming.
VIX – 22.79
Oil (USO) – Bullish – I’ve said for a couple of weeks that it looks as though crude oil may have put a top here, I’m sticking with it. Last week I sold 17 strike naked calls on USO as a result of this chart being overbought which is currently paying off. The position is a small portion of my overall portfolio (under 2%) and the margin isn’t anything that could hurt me. With OPEC’s goal of increasing oil production in the future (and President Trump publicly calling for it), I would expect oil to come back down. I will keep everyone posted on this trade.
Ag (DBA) – Bearish
GLD – Bearish
SLV – Bearish
UUP – USD weighted ETF – Bullish – The US dollar has had a fierce rally and is rapidly approaching 96 on the Dollar Index.
SOLON’S TRADING THOUGHTS
The market sold off heavily to end last week and we now see renewed volatility enter the market. Tech and the Nasdaq broke support and look like they could potentially drive the market lower. There is also a very high correlation between the market and crude oil. The price of oil is keeping the market up and serving as a last leg for it. A 10% drop in crude oil with Tech failing could see the market put in a correction which would be important to keep an eye out for. Also, the economic data that is coming out is driving bond prices higher, which is also putting a squeeze on emerging markets which trade in US dollars and have dollar denominated sovereign debt. That played a major role we saw in a global selloff to start the week. Make sure to watch out for economic activity and how it relates to future FOMC activity.
Many indicators were in place to indicate that a selloff may be coming (ARHI3M-ARLO3M being the strongest one) and it is finally here. The breaking of its 50-day simple moving average saw a significant selloff and one which has the momentum to continue much further. With the market having dropped 155 points already from its all time high that was made in September, this has gotten to correction territory. A standard correction is usually around 10%, so it would be reasonable to believe that the market will continue its trend a bit further. 2790 would be the first level of support to that was expected to be hit (an old resistance level and pivot from June) and the market passed that in one fell swoop. The next level of support would be around the 2740 level, but with momentum being as strong as it currently is, I am looking at 2700 at being a much stronger level of support that I would expect to hold. Even that could be seen as somewhat conservative as 2600 would be the more aggressive (from a bearish point of view) level of support. We will be monitoring the market daily, but as of now it does not look like the selling is quite done.
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