Week Review (12-16 Nov 2018)
Wall Street tumbled this week, with consumer discretionary and information technology stocks leading the retreat.
Concerns over peak earnings growth continued to linger, and a further breakdown in oil prices also weighed on investor sentiment. Brexit reentered the mix this week, and, as always, U.S.-China trade headlines were plentiful. The S&P 500 lost 1.6%, the Dow lost 2.2%, the Nasdaq lost 2.2%, and the Russell 200 lost 1.4%.
Within the tech space (-2.5%), Apple (AAPL) got off to a rough start after two more suppliers, Lumentum (LITE) and Qorvo(QRVO), cut their guidance. Disappointing guidance from chipmakers NVIDIA (NVDA) and Applied Materials (AMAT) also weighed on the sector, with NVIDIA plunging nearly 20% on Friday.
Meanwhile, a host of retailers reported earnings this week, including Walmart (WMT), Macy’s (M), Home Depot (HD), and Nordstrom (JWN) to name a few. The reports generally showed better-than-expected profits, but shares sold off in response nonetheless. The SPDR S&P Retail ETF (XRT) lost 4.5%, while the consumer discretionary sector lost 3.8%.
Additional Commentary On Macroeconomics
This week saw the market bounce on any U.S.-China trade development no matter if the news was new or repetitive.
A Financial Times report suggested China and the U.S. are trying to reach a trade truce ahead of the G-20 meeting at the end of the month, but clarification from the U.S. Trade Representative’s office said that the next round of tariffs for China are not on hold. President Donald Trump chimed in that China is open to a trade deal, though a list of concessions reportedly presented from China before did not mention structural reforms that have been demanded by President Donald Trump.
At the very least, National Economic Council Director Larry Kudlow did confirm that the U.S. and China have resumed trade discussions.
Overseas, UK Prime Minister Theresa May received cabinet approval for her draft withdrawal statement for Brexit. However, Brexit secretary Dominic Raab, and several other ministers, resigned after the approval, and reports indicate that the 1922 Committee received 48 letters needed to trigger a vote of no-confidence in Prime Minister Theresa May. The vote could take place next week.
In Washington, Congresswoman Maxine Waters, who is set to take over the House Financial Services Committee this January, vowed that the days of weakening bank regulations will be coming to an end. Ms. Waters’ comments should not have been seen as a surprise as it was understood this would likely be the case following the midterm election results. However, a knee-jerk sell off in the financial space, which finished the week lower by 1.3%, suggested otherwise.
Conversely, outperforming the broader market were the lightly-weighted real estate (+0.8%), materials (+0.4%), and the heavily-weighted health care (-1.1%) spaces. Utilities seems to the bright spot in a soft market for the last week.
Other Market(s) Performance
The oil-sensitive energy space (-2.1%) fell in tandem with WTI crude, which dropped 6.1% to $56.52/bbl and extended its losing streak to 12 sessions before bouncing back.
Saudi Arabia announced it would reduce its oil exports in December by 500,000 barrels a day due to a seasonal slowdown in demand, but President Trump rebuked that decision on Twitter. There were also reports that OPEC and non-OPEC allies could be entertaining a plan to cut production by 1.4 million barrels per day in 2019. However, OPEC cut its 2019 oil demand forecast for the fourth consecutive month.
Elsewhere, U.S. Treasuries saw heightened demand amid market turbulence and a softer-sounding perspective from Fed Vice Chair Richard Clarida. Mr. Clarida conceded on Friday that he thinks the Fed is getting closer to a neutral rate, which is a dovish stance compared to Fed Chair Jerome Powell’s “long way from neutral” comments from last month. The 2-yr yield lost 13 basis points to close at 2.80%, and the 10-yr yield lost 12 basis points to close at 3.07%.
2 Weeks Ago I Said……
“On the technical front, looking at the orange vertical lines I have plotted, we can see a P1=P2 price structure forming. While over the course of the next week, it’s a obvious call to say that prices will now test 2600 level. However I do have a different twist to this since it’s soooo obvious.
I am going to make a bold call for prices of SPX to consolidate & retest the upside 2700 level first before any movement to 2600 is possible. One thing is for sure, it’s going to be a volatile week.”
First & foremost please accept my sincere apologies for missing the market analysis for the past 2 weeks. Nov has been rather hectic with my business travels for seminars in 2 different countries, and also plagued with a persistent flu bug for most of the last week. This is why I didn’t provide with a timely market update since the start of Nov.
Now it’s back to business, and again if you had followed my call on SPX, you would have struck gold catching the bounce. Again the reason why I made my bold call of SPX bouncing and retesting the upside 2700 level is because of a divergence I saw on the technical charts. The confirmation came at the break of the trend line.
Week 47 Preview (19th Nov – 23rd Nov 2018)
The market is stuck in a consolidation phase for now, with the upside of 2800 in force. The reason why I think that the market might stop declining and does a retest of the 2800 supply zone is because of the advancing swing lows from a technical stand point.
However the market seems to be really spooked by the prospect of trade war between US & China. My blunt take on this is, nothing is going to stop the market as long as the fundamentals remain intact for the long term.
In the past 8 years of trading, I have witnessed the effects of tapering, raising interest rates, euro crisis & most recent Brexit. Time after time, the market bounced back strongly and continue its upwards climb as we are in a bull market.
This time round, I am not betting against it. The more negative headlines I see on news portal, the more I shake my head as stocks are changing hands from the weak hands to the “smart money”.
This week I would want to see the market testing the 2700 zone first, to probe if there are any demand at this price point. If there is, I can also expect 2800 zone to be tested again towards the end of the week. However, If the probe fails, then we should see SPX sliding below 2700 zone to test out 2625 zone.
And Because I Missed The Analysis For Past 2 Weeks……
I am going to share with you these stocks that I will be looking at for this coming week for their respective direction:
Short: MO, GS
Long: CCK, MMM
Please do your own due diligence. Trade safe guys!