The lack of a North Korean missile test and the elimination of political deadlines should be market positive.
North Korea did not test their ICBM this weekend as expected. Whether it was the solar storms or pressure from China, we do not know. However, the lack of the test should be market positive.
Secondly, the removal of the late September deadlines for the budget and the debt ceiling should also be market positive. Those were serious clouds over the market. The deal worked out with President Trump extended those deadlines until December 15th. Since these political issues are typically a challenge for the market in late September, that cloud has evaporated.
The markets Nasdaq and S&P set a new high on Monday and then faded slightly over the next four days. The S&P is only 19 points away from a new high so the profit taking was minimal. If investors believe the market risk has passed, we could see a retest of those highs at any time.
The only two bricks left in the once imposing wall of worry are the Fed announcement of tapering QE on the 20th and the normal portfolio restructuring in September. The last time the Fed tried to taper QE the market reacted negatively. However, it has been so widely discussed over the last year, this could be ignored since the impact to rates will be minimal.
The portfolio restructuring could also be minimal if the market appears to be moving higher. It is hard to sell winners when they continue to win. If portfolio managers believe the reduced market risks will lead to new highs, they may be hesitant to make major changes.
Obviously, we do not know what the market will do but we do know that every dip has been bought and the dips are becoming shallower. That is a clue there may be further gains ahead.
The S&P closed at 2,461 with the resistance high at 2,480. The chart pattern is currently neither bullish nor bearish but the fact it is holding near the highs is positive.
The Nasdaq chart is similar to the S&P with the index holding near its highs from last Monday. The big decline on Friday was due to losses in the big cap tech stocks rather than a broad based decline. The chip sector was down for the week and that was a drag on the Nasdaq.
Amazon and Google are the biggest drags on the FANG stocks and Apple was down sharply on rumors of a production delay on the iPhone X. These three stocks were responsible for much of Friday's decline.
The Dow remains the weakest index but short-term uptrend support has held. Apple was a big drag on Friday but the advance/decline ratio was 2:1 in favor of decliners. This could have simply been worries over weekend event risk and a possible headline from North Korea. The Dow needs to remain above 21,600 or it could negatively impact market sentiment regardless of what the S&P and Nasdaq are doing.
The Russell 2000 small cap stocks consolidated from their 7 days of gains and managed to hold on to support at 1,400. This is encouraging since the financial sector and chip sector was negative.
The earnings cycle is over and Oracle is the only major stock to report this week. This lack of earnings is the period when managers typically restructure their holdings for the next earnings cycle and the best six months of the year, which starts on November 1st.
The economic calendar is headlined by the Apple product announcement. Since Apple shares typically decline in the three weeks after an announcement, they really need to announcement some must have new toys or they could weigh on the market.
The next most important events are the price indexes because the Fed is hoping to see some signs of inflation so they can make another rate hike.
While the markets "should" be relieved that the political cloud has evaporated, there is never any guarantee on how they will react. September is normally the most volatile month of the year, so anything is possible. If we could get a big boost this week to set everyone's mind at ease, it is possible we could skip some of that volatility.
Enter passively, exit aggressively!
Send Jim an email