The U.S. market remains in a Downtrend. The S&P 500 and Nasdaq rallied sharply higher over the last two sessions after finding support at their respective 200-DMA. Despite the rally, we are just two days off the most recent break below the 50-DMA. The last two times indices severely undercut this moving average (May 13, August 5), the market also rallied strongly, but following three positive sessions, ran into resistance near the 50-DMA and rolled over again. Therefore, despite a strong rally to close the week, it is best to wait for another follow-through day (earliest can occur tomorrow; Day 4) coupled with a multitude of quality ideas emerging from consolidation before increasing risk.
Author: Navaneeth Nair
Won Global View
The U.S. market has been moved to an Uptrend Under Pressure. The S&P 500 staged a downside reversal closing at the lows of the session and below its 50-DMA. This warrants a cautious approach given that prior moves below the 50-DMA have resulted in increased volatility and wide and loose action for several weeks following the move lower. The Nasdaq also staged a downside reversal, closing back below its 50-DMA after briefly trading above that level yesterday. Distribution now stands at four days on the S&P 500 and five on the Nasdaq (four in the last eight sessions).
Sectors and industry groups that supported the September move back toward all-time highs have rolled back over. Utility and Consumer Staple are now the only two sectors trading above their respective 50-DMA, while Energy, Consumer Cyclical, Health Care, and Transportation are now trading 2–3% below that level. Just 83 of 197 O’Neil Industry Groups and 50% of S&P 500 stocks are trading above their respective 50-DMA, down from 137 and 70% one week ago.
Won Europe Today
Yesterday,
European markets pared early gains to close in the red owing to weak economic data from the U.S. and the eurozone. The eurozone’s PMI data hit its lowest level since 2012 while manufacturing activity in the U.S. tumbled to a decade low.
The Stoxx 600 recorded a distribution day and was down 1.3%, with almost all sectors trading in the red. Banks, Financial Services, and Travel & Leisure were the biggest losers, all falling more than 1%.
Among other major indices, France’s CAC and Germany’s DAX were down more than 1.3%, while the U.K.’s FTSE fared better owing to the pound’s weakness.
Norway was the only country to close in positive territory, while seven of the 17 indices that we track recorded distribution days.
In the debt market, European yields rose owing to a weak auction of the Bank of Japan’s 10-year bonds, but it stabilized later due to weak manufacturing data.
Won Europe Today
Yesterday,
European markets closed in the green on positive news regarding the trade war and Brexit. The U.S. and China negotiators held a phone call and agreed to meet in October to resume trade talks. In the U.K., a bill that would block a no‐deal Brexit was
passed by the lower house of Parliament.
The Stoxx 600 was up 0.72%. Banks and Automobile sectors led the gains, with auto stocks climbing nearly 3%. Health
Care was the worst performing sector.
Among other major indices, Germany’s DAX climbed 0.85% on higher volume, breaching its 50‐DMA. France’s CAC was up
more than 1% on higher volume, while the sterling‐sensitive U.K. FTSE was down 0.55% and is trading near its 150‐DMA.
Only the U.K. and Denmark closed in negative territory, with the latter recording a distribution day. The market statuses
for Finland and Spain were changed to a Confirmed Uptrend as both had a follow‐through day.
Won Global View
The U.S. market has been moved back to a Confirmed Uptrend. The S&P 500 and Nasdaq cleared above their 50-DMA, a firm level of resistance over the last month, on rising volume. Multiple sectors and groups participated in the move higher. We would like to see the 50- DMA turn into support as the next level of resistance is at all-time highs (S&P 500: 3,028 Nasdaq: 8,339). The Nasdaq has five distribution days, while the S&P 500 has three.
Won Europe Today
Yesterday,
European markets closed in the green on easing of geo‐political tensions in Hong Kong, Britain, and Italy. This easing of
tensions led to flight of capital towards riskier assets with safe haven German bond yields rising to close at ‐0.67%.
In the U.K., Prime Minister Boris Johnson failed to get a two‐thirds majority to call for a snap election, greatly reducing
the possibility of a no‐deal Brexit.
The Stoxx 600 was up 0.89% and closed above its 50‐DMA. All sectors were trading in the green. Basic resources, Banks,
and Automobile sectors led the gains, with the former jumping more than 2.5%.
Among other major indices, France’s CAC and the U.K.’s FTSE 100 climbed 1.21% and 0.59%, respectively, on higher
volume, while Germany’s DAX was trading 0.90% higher on lower volume.
All the European markets we cover closed in positive territory, with Luxembourg, Italy, and Ireland posting gains of more
than 1.5%.
Won Global View
The U.S. market is in an Uptrend Under Pressure. The S&P 500 and Nasdaq continue to consolidate below resistance at the 50-DMA. Although volume has been below average over the last several weeks, price action has been volatile between the 50- and 200-DMA. The Nasdaq has five distribution days, while the S&P 500 has three.
Won Global View
The U.S. market is in an Uptrend Under Pressure. The S&P 500 and Nasdaq pulled back as the Nasdaq picked up a distribution day. The count increased to five distribution days on the Nasdaq and remained at three on the S&P 500. Overall, action remains choppy with no clear trend yet to develop. Resistance remains at the 50-DMA ( S&P 500: 2,944 Nasdaq: 8,044 ).
Defensive sectors/groups outperformed, led by Utility (1.7%), Gold (1.4%), and Staple (0.5%). All other sectors declined, led lower by Transportation (-1.5%) and Capital Equipment (-1.3%). Only defensive sectors are above their 50-DMA; every other sector is trading a median of 2.1% below its 50-DMA. ~60% of S&P 500 constituents are also below their 50-DMA.
Won Europe Today
Yesterday,
European markets closed in the red amid political uncertainty over Brexit and the possibility of a third general election
in four years. The British government lost its majority yesterday and a proposal to thwart a no‐deal scenario would be
tabled today.
German and Italian bond yields plummeted further after reports emerged that the European Central Bank is considering
a stimulus package that will include interest rate cut and a compensation package for banks over negative interest rates.
The Stoxx 600 was down 0.23% and is trading below its 50‐DMA. Almost all sectors traded in the red, with Oil & Gas,
Banks, and Chemicals dragging the index down.
Among other major indices, France’s CAC and Germany’s DAX were down 0.49% and 0.36%, respectively, on higher
volume. CAC recorded a distribution day while the sterling‐sensitive FTSE 100 lost 0.19% over political uncertainty and
weak construction PMI data.
Denmark was the only country to close in positive territory while France, Ireland, Norway, Switzerland, Austria, Italy, and
Belgium recorded distribution days.
Won Global View
The U.S. market is in an Uptrend Under Pressure. The S&P 500 and Nasdaq are consolidating below their respective 50-DMA after advancing ~2.8% last week. Despite the move higher, we maintain a cautious outlook as the 50-DMA has consistently been a level of resistance over the last four weeks. The distribution day count stands at four days on the Nasdaq and three days on the S&P 500.
All sectors moved higher last week, led by Transportation (3.5%), Capital Equipment (3.3%) and Material (3.3%) however only defensive sectors — Utility and Staples— are trading above their 50-DMA while Retail is sitting on this key moving average. The two largest sectors by market cap —Technology and Financial— are less than 1% below their 50-DMA.
