October 10, 2018 at 8:33 pm #9947Kirti ParmarMember
Excellent market commentary today as usual.
The huge selloff today had a huge impact on the Market Forecast indicator, bringing the intermediate line for SPX down well below 30 and the near term line within a hair of the lower reversal zone. This, combined with the momentum line being at 0.66, leads me to feel that we are not quite done with the selling. Yes, today’s trading range and volume were about 3x normal, pulling forward a lot of the selling from the future but I expect trading to remain in the range of the current levels at least through October expiration.
We also have mid-term elections coming up in less than a month, and uncertainty about the results (esp. their impact on economic and trade policies) would, I expect, keep volatility high through election day.
Sector rotation is, as you noted, has started a few weeks ago. But even here I’m not seeing much conviction. Value equities may indeed come into vogue; and there is nothing wrong with that. But I don’t see these helping short term unless the earnings season is an absolute blowout.
So although I remain bullish longer term, my feeling is we stay sideways through early November elections and then make a move one way or the other.
I’d love to hear more of your thoughts.
October 10, 2018 at 11:31 pm #9958David SettleKeymaster
There are a lot of seasonality factors that suggest we can bullish into the end of the year, one of them being the current expected outcome of the mid-term elections (split Congress with Republican president). Of course, anything can happen and I think there could have been more of an extended pullback towards support but since we dropped so much today so fast, it makes me think we pulled forward a lot of selling. Not that we will form a V-bottom. But, I do think there’s a good chance for a low to be put in here – even with the low-volume selling in the futures right now.
October 11, 2018 at 12:12 am #9960Kirti ParmarMember
Certainly hope the seasonality trend holds. More than anything, my less bullish outlook is due to the upcoming elections (not necessarily their result) and expectations of earnings that will be good but not spectacular.
The rest of this week will hopefully provide stability. But currently the futures are pointing to another rather large drop tomorrow on volume significantly higher than during Feb’18 pullback.
October 11, 2018 at 2:06 am #9962David SettleKeymaster
Kirti, I showed a comparison of the February overnight sell-off in futures and how its volume compared to tonight’s volume so far: https://twitter.com/davidsettle42/status/1050265865877245953
October 10, 2018 at 11:53 pm #9959Mike NataleMember
This down move was expected and you have been mentioning for weeks, perhaps not the velocity of today but the 5 day expected move of the spx on Sunday night was 50. We are well beyond that for the first time in months at 2x the EM. The most concerning thing I saw today was breakout in the vvix as compared to the vix.(would’ve liked a 30plus print) If we gap down tomorrow I’ll be looking to put some long delta on but hands in pockets if we gap up big.
How’s the view count indicator?
The troll indicator seems to be flashing
Everyone on the east coast in the way of Michael plz stay safe!
October 11, 2018 at 12:45 am #9961Phil Van OstrandMember
Shortly after 12:30 PM Thursday in Singapore and about all I can say is look out below as the Asian markets continue melting. I expect margin call pressure and general uneasiness to hang over the US market until we get a handle on what the early call on earnings looks like starting Friday. I agree with most of David’s assessment on the technical picture, but I am not comfortable comparing today’s action with the March performance. A fair amount of dry powder, but don’t think I will be reaching into the magazine for it in the immediate future…at least until early next week.
October 11, 2018 at 7:34 am #9963Paul WeeksMember
I wonder how much passive investing has amplified this selloff. I think there are a lot of investors who think they are diversified by buying SPY, XLK, etc. What they perhaps don’t realize is that they aren’t that diversified, because these ETFs are Market Cap weighted. If you buy SPY, you are buying lots of FANG , if you are buying XLK you are buying lots of AAPL and MSFT. Either way you are buying lots of Tech. Now on the flip side, what happens when Tech sells off? The first answer is that it causes a selloff in SPY because there is so much Tech in market cap weighted SPY. That’s a lot of FANG that somebody now has to buy. Who is going to be buying all that FANG in a huge tech selloff? It maybe becomes a feedback loop?
October 14, 2018 at 10:40 pm #10028Richard SteffenMember
I agree with your comment on SPY in that you are buying the good and bad of a large group of stocks. I would like to have your group discuss the pros and cons of individual stocks versus the SPY and what they have experienced?
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