More Mixed Signals

posted Oct 28, 2014, 10:17 AM by Katie Shook

The markets continue to throw a lot of mixed signals out there.  Take a look at Twitter overnight, which is down around 12%.  Once again, earnings misses are being used as reasons to absolutely hammer individual positions.  That kind of massive hit — the same kind of hit we saw Netflix and Amazon both endure recently – is not typically indicative of a healthy market environment.  It seems more indicative of a high fear factor.

When looking at the SPX, the index is sitting at a capitulation point.  Yesterday finished right at the 100-day moving average.  Overnight, the futures appear to have tested the 50-day moving average.  However, futures fell after the announcement of the durable goods order (which declined).  The pricing pattern for yesterday was another ‘Doji’ pattern for you candlestick guys.  That typically indicates a pricing reversal.  In this case, it means there’s a pretty decent probability that prices are headed south again.  Today’s close will be key.  A close below 1961 would indicate further downside, with a possible re-test of the 1910/1900 level.

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It appears the US may suffer a sympathetic slow down relative to Europe.  It also appears there is still plenty more slack in the labor market than the unemployment number would truly indicate.  As such, the Fed has some more rope to work with before inflation becomes a problem.  That makes today and tomorrow all the more interesting.  Policy guidance is going to be a big deal.  I know this though — it’s been a bad idea to bet against the Fed for a long time now.  My bigger concern is that the Fed is becoming less direct in their guidance leaving the markets speculating more and more.  The fact that various Fed governors give speeches after big moves in the market at ‘just the right time’ to cause markets to reverse is cause for pause.  On the one hand, it appears the Fed is committed to maintaining stock prices.  On the other, it appears reactive in nature and implies they’re further behind the power curve than one would hope.

Regardless, it appears volatility and the flight to safer dividend-paying large-caps is still the theme of this market.  And if you are somehow linked to the production of commodities (railroads and oil rigs) look out.  But if you use commodities (airlines) look up.  Or so the theme has gone thus far.

Whatever you do, don’t let your emotions get you wrapped up in this market.  Be disciplined and stick to a process.  It’s about math, not magic!

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