Weekly Market Update – 18 December 2017 BMO

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Central Banks Take Center Stage

U.S. stocks climbed to new record highs this week as investors digested policy directives from several of the world’s most influential central banks and grew increasingly optimistic about the GOP’s chances of passing its promised tax overhaul.

The S&P 500 added 0.9%, the Dow advanced 1.3%, and the Nasdaq jumped 1.4%. All three major indices settled Friday’s session at fresh record highs. The Russell 2000 outperformed on Friday but the small-cap index closed -0.5% lower for the week.

The Federal Open Market Committee voted to raise the fed funds target range by 25 basis points to 1.25%-1.50% on Wednesday, as expected. Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari–the FOMC’s two most dovish members–dissented, saying they preferred to keep the target range unchanged.

In addition, the Fed’s so-called “dot plot” revealed that the median FOMC member still anticipates three rate hikes in 2018 and two in 2019. Both figures were unchanged from the projections released in September, even though the central bank acknowledged that overall inflation and core inflation have declined this year and are running below 2.0%.

U.S. Treasuries rallied in a curve-flattening trade on Wednesday following the decision, while the U.S. Dollar Index moved sharply lower. The 2yr-10yr spread ended the week at 52 basis points, which is six basis points below last week’s closing level. The U.S. Dollar Index finished the week higher by 0.1% at 93.94.

The flattening of the yield curve weighed on lenders, sending the S&P 500’s financial sector lower by 0.1%.

Elsewhere, the European Central Bank decided to leave its key policy rate unchanged, as expected, and reiterated that it will reduce its monthly asset purchases to EUR30 billion (from EUR60 billion) starting in January and continuing through September 2018–or beyond, if necessary.

The Bank of England also met this week, voting to leave its key rate at 0.50% and its asset purchase program at GBP435 billion, as expected.

In Washington, House and Senate Republicans reportedly reached an agreement on a final version of their tax reform bill on Wednesday, but Senator Marco Rubio (R-FL) pushed for some last-minute changes, saying on Thursday that he would vote against the measure unless it further expands the child tax credit for lower-income households.

GOP leadership worked to appease Mr. Rubio and earned his support, as well as the support of Senator Bob Corker (R-TN), on Friday. With the two Senators on board, it appears that the Republicans have enough support to pass their tax reform bill, but a final vote won’t take place until early next week.

On Wall Street, telecom shares within the S&P 500 jumped 4.0% this week, underpinned by the prospect of tax reform and the Federal Communications Commission’s decision to roll back the “net neutrality” rules put in place by the Obama administration back in 2015. The rules required broadband providers to treat all internet traffic equally.

In corporate news, Walt Disney (DIS) agreed to purchase select assets from 21st Century Fox (FOXA), including its film division and much of its TV operations, for $52.4 billion in stock. The two companies added 6.8% and 5.1%, respectively, helping the consumer discretionary sector (+1.1%) finish ahead of the broader market.

(Excerpts from Briefing.com)

Tax Relief in the Making

There’s little mystery behind today’s broad-based rally effort.  It has been forged on a sense of relief that the tax bill looks ready to make its way out of the conference committee with Senator Rubio’s backing.Senator Rubio caused a bit of a stir on Thursday when he said he would vote ‘No’ on a compromise bill that did not expand the refundability of the child tax credit.  That concern, reportedly, has been addressed and now Mr. Rubio is said to be in favor of backing the compromise bill.

The bill’s passage isn’t guaranteed until the vote in the House and Senate chambers guarantees its passing, yet there is no mistaking in today’s action that optimism is high that the bill is headed that way and eventually to the president’s desk for signing before Christmas.The Russell 2000, which was the sore spot yesterday on Mr. Rubio’s protestations, is the sweet spot today — up 1.9% and leading all major indices — as investors price in the expected benefits for domestic small-cap companies, which pay higher effective tax rates and will presumably benefit greatly from the cut in the corporate tax rate.

Another indicator pointing to the notion that it should be clear sailing ahead in the near term for the tax bill — and the stock market — is the CBOE Volatility Index.  It is down 10.8% to 9.36, as market participants are denouncing the need for hedging stock portfolios against downside risk.

That could of course spell big problems if the tax bill gets voted down, yet that seems to be far from the stock market’s base-case scenario, which is rooted in a best-case scenario of it passing and being signed into law before Christmas.

Dollar: Dollar Index Reclaims 50-Day Moving Average Again

The U.S. Dollar Index was up 0.5% at 93.96, returning above its 50-day moving average (93.80) after finding resistance near that level during Friday’s session. The dollar saw some overnight selling, but began staging a rebound during the European session, continuing its push into morning action. The morning rebound accelerated after the release of an in-line Empire Manufacturing report for December (18.0). The final thrust to a session high took place even though the November Industrial Production report (actual: 0.2%; consensus: 0.3%) missed expectations. Thanks to today’s rebound, the Index is on track for its third consecutive weekly advance, looking to eke out a slim gain of 0.1%.

Bonds: Long Bond Climbs Again

U.S. Treasuries ended the week on a mixed note, as shorter-dated maturities registered modest losses while the long bond continued its show of relative strength. A wave of selling developed in the wake of an in-line December Empire Manufacturing report (actual: 18.0) and continued through the release of below-consensus Industrial Production for November (actual: 0.2%; consensus: 0.3%). The 2-yr note and the 5-yr note saw some light intraday buying, but couldn’t climb too far above their morning lows. Meanwhile, the 10-yr note erased the bulk of its morning decline and the long bond powered to a fresh high after reclaiming its entire post-data loss. Reports from Washington suggested that the tax bill is back on track for passage after Senator Marco Rubio’s support was regained. That said, the Treasury market has questions about the plan’s ability to boost economic growth, evidenced by the decline in the 30-yr yield over the past three months. The yield curve flattening trend continued with the 2s10s spread compressing to 52 bps from last Friday’s 58 bps. The 2s30s spread contracted to 85 bps from 97 bps one week ago.

Commodities: Crude consolidates below $58p/b, Metals bounce back on seasonal run

Baker Hughes total U.S. rig count decreased by 1 to 930 following last week’s increase of 2.

Agriculture: Wheat consolidates, Corn and Soy continues weakness

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THE NEXT TWO WEEKS AHEAD

Week 51 is the third trading week for December and the penultimate trading week of the year. Week 52 is the last trading week for 2017 and has only four sessions as Monday is Christmas Day.

Monday 18 December to 29 December (Week 51 and 52)

The fifty-first week of 2017 (wk51) is very bullish across all time-frames on the SPY and DIA.

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The fifty-second week of 2017 (wk52) is unreliably bullish over the 15 year average, volatile over 10 years and very bearish in the last 5 years on the SPY and DIA

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The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 51;

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The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 52;

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Key Economic Dates

In the coming week, the most important US releases will be the final GDP growth for Q3, personal spending, housing data and durable goods. Investors will also be waiting for: UK final GDP growth and CBI factory orders; Japan interest rate decision and trade balance; Eurozone inflation and Germany business and consumer morale. There is no significant economic data in the final week of the year.

Mon 18 December

Tue 19 December

Wed 20 December

Thu 21 December

Fri 22 December

Mon 25 December

Tue 26 December

Wed 27 December

Thu 28 December

Fri 29 December

SUMMARY

Yields are continuing to hint at 2018 weakness as the curve continued to flatten by pivoting on the belly go the curve.

CurveYTD

Even though the yields are under-par, one must consider the Central Bank’s role is the bond trade having an effect on the overall yields along the 2, 5, 10 and 30 year maturities. It would seem that given the trillions that poured into the bond market, the “new norm” on rates would be lower than in the past when the average high on yields were 4% to 5% on the 30 year.  Thus, this flattening can be construed as a pivot on the longer maturities, as was the case in December 2007/January 2008. When looking at a three-year timeframe, the pivot on the longer maturities is even more obvious.

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January is going to be a critical month seeing how most Inverted Yield Curves in the past have historically favoured January or Q1.

Bitcoin made a Rising Wedge with a record high 17,985 this week.

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This has propelled Bitcoin into the #1 biggest bubble in history.

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*UPDATE at 22:00 on 17 Dec: Bitcoin makes record high 19,844.

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Bring on 2018!

That’s it! Just like that, a whole trading year is gone and we start a whole new cycle again in two weeks’ time. It has been a heck of a year.

My first year in independence has really opened my eyes to opportunities I never saw before and opened doors I never knew I could open. It has made me realise a bigger potential that I could not have imagined in the ten years before. It has given me a direction and purpose that didn’t exist before. I am grateful for the opportunities that have opened up for me and the promise of brighter things to come in 2018 and 2019.

With one week to go till Christmas, I’d like to take this opportunity to wish everyone a great Christmas week ahead and thank all my readers for the support and contributions that make 2017 a truly memorable year for me!

Happy Hunting!

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Weekly Market Update – 10 December 2017 BMO

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Waiting on Washington

Equities ticked higher this week as investors geared up for an end-of-year showdown in Washington.

The S&P 500 and the Dow Jones Industrial Average both advanced 0.4%, closing Friday’s session at fresh record highs, while the tech-heavy Nasdaq underperformed, losing 0.1%. Small caps struggled this week, pushing the Russell 2000 lower by 1.0%.

Investor sentiment was upbeat at Monday’s opening bell after the U.S. Senate passed its version of a tax reform bill over the weekend, allowing the GOP to enter the final stretch of its quest to rewrite the tax code. House and Senate Republicans are hoping to reach an agreement on a final bill and pass said bill in their respective chambers before December 22.

In addition to the GOP’s self-imposed tax reform deadline, December 22 is the new end date for government funding after Congress agreed to a two-week stopgap spending bill on Thursday evening. The risk of a government shutdown was on investors’ minds throughout the week, helping to keep the bulls in check.

With the legislative agenda for the rest of the year virtually set, investors appeared to be in wait-and-see mode for much of the week, taking some profits and readjusting their portfolios. However, the Employment Situation Report for November, which was released on Friday, helped equities finish the week on a positive note.

The Employment Situation Report for November showed a larger-than-expected increase in nonfarm payrolls (228K actual vs 190K consensus) and a smaller-than-expected rise in average hourly earnings (+0.2% actual vs +0.3% consensus).

In other words, job growth has remained strong while wages–which are positively correlated with inflation–have remained relatively subdued. This combination has proven to be highly beneficial for the stock market as it points to steady economic growth but leaves out the inflationary concerns that typically accompany said growth.

Corporate news was pretty light this week, but it’s worth noting that CVS Health (CVS) acquired health insurer Aetna (AET) for $207 per share in cash and stock. That price represents a premium of about 29% to where Aetna shares were trading before the Wall Street Journal reported that the companies were in talks in October.

The S&P 500’s eleven sectors finished the week mixed, with seven settling in the green and four closing in the red. The financial sector was the top performer, adding 1.5%, followed closely by the industrial group (+1.4%). Within the industrial space, transports showed particular strength, pushing the Dow Jones Transportation Average higher by 2.1%.

On the downside, the energy sector lost 0.7% amid a decrease in the price of crude oil; West Texas Intermediate crude futures declined 1.8% to $57.30 per barrel. The utilities space (-1.0%) also struggled as energy providers like Edison (EIX) faced outages due to wild fires in Southern California; EIX shares lost 11.1% for the week.

A positive vibe from overseas equity markets on Friday also contributed to the upbeat sentiment on Wall Street. Stocks in the Asia-Pacific region finished Friday broadly higher as investors rallied around China’s better-than-expected November trade surplus (+$40.21 billion actual vs +$35.00 billion expected). Japan’s Nikkei added 1.4%, finishing flat for the week.

Elsewhere, the Euro Stoxx 50 settled with a gain of 0.6% after the UK and the European Union reached an agreement on Brexit divorce terms. Britain will pay as much as GBP39 billion to complete the separation and there will be no hard border between Ireland and Northern Ireland. Talks will now turn to future trade relations.

In addition, Congress’ decision to pass a two-week stopgap spending bill, which delayed an impending government shutdown, helped underpin Friday’s advance.

Looking ahead, the Fed is widely expected to announce a rate hike of 25 basis points next week, which would bring the fed funds target range to 1.25%-1.50%.

(Excerpts from Briefing.com)

Employment Situation Report

Dollar: 50-Day Moving Average Reclaimed

Bonds: True-to-Trend Jobs Report Elicits Muted Response

Commodities: Crude closes below $58p/b, Metals continue weakness

Baker Hughes total U.S. rig count increased by 2 to 931 following last week’s increase of 6.

Agriculture: Grains retreat

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THE WEEK AHEAD

Week 50 is the second trading week for December and expiration week (Triple Witching) for December contracts.

Monday 11 December to 15 December (Week 50)

The fiftieth week of 2017 (wk50) is bullish over the 5 year average and bearish over the 10 year average on our seasonal models on the SPY and DIA. The 15 year average is bullish on the DIA and bearish on the SPY

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The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 50;

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Key Economic Dates

Next week, the most important event will be the Fed monetary policy decision. The ECB and the BoE will also provide an update on their monetary policy. Other key data include: US inflation rate, retail trade, industrial output and PMIs; UK inflation and unemployment; PMIs for the Eurozone, Germany and France; and China factory output and retail sales.

Mon 11 December

Tue 12 December

Wed 13 December

Thu 14 December

Fri 15 December

SUMMARY

Bitcoin has been the rage for the last two weeks. This week, the cryptocurrency broke all sorts of records by making the most gains in the quickest time. Barely breaking above 15000 on Wednesday by gaining 1000 points in a day, Bitcoin went on to get above 16000 in four hours on Thursday and then broke to 17,612 (+23%) that evening.

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This has become the second most vertical chart in financial history, after Tulip Mania.

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In the age of the “Everything Bubble” bubble, this one stands out as the most impressive … and the scariest of them all. And oh … the price fell straight back down below 15,000 and is languishing at 14,100 over the weekend.

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Friday AMC

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Sunday morning

The nature of the bubbled economy also brings out the scams, cheats and failures as liquidity dries up and financial products falter, as cash-flows slow and credit gets tight, and as costs rise and profits falter.

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Even having a huge and luxurious office next to SGX, your own painted livery on an international airline and having ministers and news networks associated to the business does not assure investors that the worst won’t happen. It was very upsetting to drive past the building to see a huge “FOR RENT” sign right on the door of the once behemoth institution.

This is why I have always advocated that everyone should take the effort to learn the business before investing in something you don’t understand or something a sale-person sold you. No matter how good, real and convincing the package looks, if you don’t know anything and everything about it, don’t buy it.

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http://www.tnp.sg/news/business/investors-file-police-reports-over-fintech-firm-sixcapital

BONUS!

Here’s an excerpt of our Annual Christmas Gathering regarding the yield curve and a certain pattern that has preceded every major economic and market downturn. Enjoy!

Happy Hunting!

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Pattern Trader Tutorial Preview

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Macrotraders turn risk into opportunities. They use simple financial management techniques to minimise their risks. They hedge. 

FCMY04 copyThis workshop will introduce you to the basic concepts of trading on macroeconomics and how Macrotraders like George Soros and John Paulsen are able to take up low risk positions for short to medium term profits in any direction.

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Pattern Trader™ Introductory Session

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Weekly Market Update – 04 December 2017 BMO

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Bullish Ahead of Senate Tax Vote

U.S. equities advanced this week, fueled by the prospect of a tax overhaul.

The Dow led the charge, moving higher by 2.9%, followed from a distance by the S&P 500 and the Russell 2000, which added 1.5% and 1.2%, respectively. Meanwhile, the tech-heavy Nasdaq declined 0.6% as technology stocks fell to some profit taking following a big year-to-date run.

Investors kept an eye on Washington throughout the week, awaiting the Senate’s vote on its version of a tax reform bill. Things appeared to be progressing nicely as the bill made its way through the Senate Budget Committee on Tuesday and Senator John McCain (R-AZ) voiced his support for the measure on Thursday.

However, the effort hit a bump in the road on Thursday evening when the Senate parliamentarian ruled that a revenue trigger within the bill–which would have raised taxes in the future if economic growth failed to make up for lost tax revenue–is not allowed under Senate rules.

The trigger was a key provision for several GOP Senators who are concerned about the tax overhaul’s potential impact on the national debt.

Senate Majority Leader Mitch McConnell (R-KY) suggested on Friday afternoon that a compromise to appease the aforementioned debt concerns had been reached, saying that the GOP has enough votes to pass the bill. However, an official vote has yet to take place.

The Senate’s promising progress on tax reform largely fueled this week’s rally, but equities also received support from Jerome Powell’s Fed Chair confirmation hearing, which took place on Tuesday. Mr. Powell’s comments were largely in line with the Fed’s current policy rhetoric, but he did sound a little more lax in the area of regulation.

There were a few developments that worked against the bulls this week, perhaps the most notable of which was former National Security Advisor Michael Flynn’s plea deal with Special Counsel Robert Mueller’s team–which is investigating Russia’s alleged interference in the 2016 U.S. presidential election.

Mr. Flynn pleaded guilty to lying to the FBI about his contacts with a Russian ambassador to the United States and agreed to cooperate with Mr. Mueller’s investigation. An ABC report indicated that Mr. Flynn is willing to answer questions about President Donald Trump, which reignited fears about a potential impeachment.

Also, North Korea launched a ballistic missile on Tuesday that landed in the Sea of Japan–specifically in Japan’s exclusive economic zone.

Nine of eleven sectors finished the week in positive territory. The top-performing groups were telecom services (+6.7%), financials (+5.2%), industrials (+2.9%), and energy (+2.7%), while the weakest sectors were information technology (-2.0%) and real estate (-0.5%).

The energy sector rallied after OPEC and non-OPEC nations, including Russia, agreed on Thursday to extend their production cut agreement by another nine months, as expected. Meanwhile, West Texas Intermediate crude futures finished in the red for just the second time in eight weeks, dropping 1.0% to $58.36 per barrel.

Within the industrial sector, transports showed particular strength, pushing the Dow Jones Transportation Average higher by 5.9%.

Following this week’s events, the CME FedWatch Tool still places the chances of a December rate hike at 100.0%.

(Excerpts from Briefing.com)

Dollar: Index Trims Weekly Gain

Bonds: Treasuries Climb; Spreads Tighten

Commodities: Crude Consolidates above $58p/b, Metals retreat

Baker Hughes total U.S. rig count increased by 8 to 923.

Agriculture: Corn and Wheat continues to rise, Soy consolidates

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THE WEEK AHEAD

Week 49 is the first trading week for December and the start of the month of the trading year. December 2017 has 20 trading sessions and one public holiday (Christmas, Monday 25 December).

Monday 04 December to 08 December (Week 49)

The forty-ninth week of 2017 (wk49) is flat-to-bearish over 10 and 15 year averages and very bearish over the five year average on our seasonal models on the SPY and DIA.

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The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 49;

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Key Economic Dates

The coming week will see the November jobs report in the US as the most important event. Elsewhere, China inflation and trade; Australia and South Africa GDP growth and interest rate decisions for India, Australia, Canada and Brazil will also be in the spotlight.

Mon 04 December

Tue 05 December

Wed 06 December

Thu 07 December

Fri 08 December

SUMMARY

Yields have closed to its tightest in ten years with the spreads between the 2/5, 5/10 and 10/30 at 4obps or less. The 5/10 is only 24bps and it won’t take much to flatten and invert from here.

Yields

The last two weeks have seen the benchmarks perform very much against its historical performance and in a most divergent manner. The last time I remember the benchmarks behaving so erratically was in August/September 2007 and January/February 2012.

If history is indeed repeating itself, then keep your eyes on the Yield Curve and the VIX.

VIX

And don’t get caught out if and when the fireworks begin.

Happy Hunting!

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Weekly Market Update – 27 November 2017 BMO

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More Record Highs

A festive mood struck Wall Street this week and it translated into further gains for the major indices, which culminated in new record highs for the S&P 500 and Nasdaq Composite.

The Russell 2000 led the way as domestically-oriented small-cap stocks were pushed up on tax reform optimism.

The Nasdaq Composite followed close behind with a 1.6% gain that was led by the familiar contingent of Apple(AAPL), Amazon.com (AMZN), Facebook (FB), Alphabet (GOOG), Netflix (NFLX), and Microsoft (MSFT), as well as ongoing strength in the semiconductor stocks.

The Philadelphia Semiconductor Index jumped 2.7% for the week, underpinned by M&A activity that featured a bid by Marvell Technology (MRVL) to acquire Cavium (CAVM) and reports suggesting Broadcom (AVGO) might return next week with a higher offer to acquire Qualcomm (QCOM) after the latter company rejected its $70 per share cash-and-stock offer.

Beyond the news itself, though, the broader market was carried along by an embrace of the seasonality trade, which is to say participants rode the notion that this Thanksgiving week is often accented with a positive bias.

There was no denying the positive bias this time around.

The seasonality factor hit home in earnest on Tuesday when the major indices logged gains between 0.7% and 1.1% despite the Department of Justice filing a lawsuit to block the AT&T (T) – Time Warner (TWX) merger and a lack of any clear-cut news to explain the unmitigated bullish bias.  That bullish bias took the S&P 500 above 2600 for the first time ever, squeezing short sellers and feeding a fear of missing out for sidelined participants.

There was only a slight retracement on Wednesday when the S&P 500 dropped two points despite an acknowledgment in the minutes for the October 31-November 1 Federal Open Market Committee meeting that “…several participants expressed concerns about a potential buildup of financial imbalances” given elevated asset valuations and low financial market volatility.

Those concerns could come home to roost at another time, but this week wasn’t governed by any unsettling concerns.

The market traded up, and through, reports that talks in Germany to form a coalition government had failed (although reports Friday suggested a coalition might be struck after all); it traded up, and through, Fed Chair Yellen’s announcement that she will be resigning from the Board of Governors upon the swearing in of Jerome Powell as Fed Chairman; and the stock market traded up, and through, another week in which a curve-flattening trade persisted in the Treasury market.

The spread between the 2-yr note yield and the 10-yr note yield narrowed to 60 basis points from 63 basis points a week ago and 125 basis points when the year began.  A narrowing spread often piques concerns as being a harbinger of a slowdown in economic growth.

There wasn’t much economic data this week, although the few reports that there were generally surprised on the upside.  The Leading Economic Index, Existing Home Sales, and University of Michigan Consumer Sentiment reports were all better than expected.

The Durable Goods Orders report for October was weaker than expected (-1.2%), yet the disappointment over that headline was mitigated by the understanding that the weakness was driven by volatile aircraft orders.  Excluding transportation, durable goods orders rose 0.4% on the heels of an upwardly revised 1.1% increase (from 0.7%) for September.

The coming week will feature a longer lineup of economic data, including the New Home Sales (Monday), Consumer Confidence (Tuesday), revised Q3 GDP (Wednesday), Personal Income and Spending (Thursday), ISM Index (Friday), and Auto Sales (Friday) reports.

That data will be competing for market participants’ attention along with the confirmation hearing for Jerome Powell (Tuesday), Fed Chair Janet Yellen’s economic outlook testimony before the Joint Economic Committee (Wednesday), the meeting between OPEC members and Russia to discuss extending production cuts (Thursday), and the expected vote on the Senate’s tax bill (Thursday).

Clearly, then, there will be a lot to chew on for market participants in the coming week after they digest the fulfilling gains of another seasonally-strong Thanksgiving week.

(Excerpts from Briefing.com)

Dollar: Index Remains Pressured

Bonds: Yield Curve Flattens More

Commodities: Crude Rebounds to April 2015 Level

Gold and Silver fell and Copper bounced. Baker Hughes rig count data was provided on Wednesday because of the holiday. It showed the total U.S. rig count increased by 8 to 923 following last week’s increase of 8.

Agriculture: Grains Bounce Back

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

Week 48 is the last trading week for November and the start of the Holiday Season.

Monday 27 November to 01 December (Week 48)

The forty-eighth week of 2017 (wk48) is bullish over all timeframes on our seasonal models on the SPY and DIA.

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The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 48;

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Key Economic Dates

In the coming week, the most important data for the US include the 2nd estimate of GDP growth, ISM Manufacturing PMI, personal spending and new home sales. Investors will also be looking for the BoE monetary indicators; Euro Area inflation; Japan inflation and unemployment; China PMIs; and GDP growth for Canada, India and Brazil.

Mon 27 November

Tue 28 November

Wed 29 November

Thu 30 November

Fri 01 December

SUMMARY

As we go into the final month of the year which is traditionally a bullish period, the current bull run is starting to look very tired. The signs that warned us late in 2006 are repeating themselves again like an instant replay; tight yield spreads, parabolic indices, overvalued securities, crude running up, etc … way too many to be a coincidence. The only difference is that the Fed Fund Rate is closer to the lows at 1.25% than as it was high at 5.25% in 2006.

I am sticking to keeping my trades quick and hedged as the economic signals hint at more upside. This week’s Fed Speak and Preliminary GDP will tell us more in terms of what to expect going into the final month of 2017.

On a side note, I have been saying at all my talks this year that I expected Crude to break above $60p/b by end October – early November based on a old oil trader’s practice; the alignment of planets. In this case, the reference was to Earth, Mars and Saturn. I totally misread some of the material and got my dates off by a month.

You can read up on this stuff here:

MERCURY IN TRANSITION: MOVING TOWARD SATURN INTO NOV. 28TH

The most interesting read is at the bottom of the report: The (Mercury) retrograde does not start until Dec. 3rd and everyone knows about Mercury retrograde and we will write more about it next week.  Shares of stock are ruled by Mercury and also stock brokers so we think that end of the year profit-taking will hit the stock market with this conjunction and retrograde action.

Crude

So it looks like the break above $60 on Crude is likely to be in the coming week or early December. How I got that is a discussion for another posting.

Happy Hunting!

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Comments Off on Weekly Market Update – 20 November 2017 BMO

Weekly Market Update – 20 November 2017 BMO

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Dex

Lots of Noise, Little Movement

The U.S. equity market ended a busy week little changed, with the benchmark S&P 500 losing just 0.1%. Meanwhile, the Dow dropped 0.3% this week, while the Nasdaq and small-cap Russell 2000 outperformed, finishing with gains of 0.5% and 1.2%, respectively.

Investors continued to keep an eye on Capitol Hill, where Republican lawmakers are trying to implement the biggest tax overhaul in more than 30 years. The House passed its version of a tax reform bill on Thursday, while the Senate continued to make changes to its version, which now includes a provision to repeal the Affordable Care Act’s individual mandate.

Retailers dominated this week’s batch of earnings–one of the final batches of the third quarter earnings season.

Shares of Wal-Mart (WMT) jumped 10.9% to a new all-time high on Thursday after the world’s largest retailer reported better-than-expected earnings and revenues for the third quarter and issued upbeat profit guidance for fiscal year 2018. Conversely, shares of Target (TGT) tumbled 9.9% on Wednesday after the company issued a disappointing earnings forecast for the holiday season.

Ross Stores (ROST), Gap (GPS), Advance Auto (AAP), Foot Locker (FL), Abercrombie & Fitch (ANF), Buckle (BKE), Shoe Carnival (SCVL), and Hibbett Sports (HIBB) all soared after beating quarterly profit estimates. Most also beat sales estimates, and many provided upbeat guidance.

Unsurprisingly, the S&P 500’s consumer discretionary (+1.3%) and consumer staples (+1.0%) sectors, which house retailers, finished near the top of the week’s sector standings. The telecom services (+0.8%) group also outperformed, trimming its November loss to 2.1%.

On the flip side, the energy sector (-3.4%) struggled, giving back the prior week’s advance and then some. The price of crude oil decreased at the beginning of the week–which didn’t bode well for the energy group–but the commodity bounced back on Friday to end the week little changed; West Texas Intermediate crude futures slipped 0.1% to $56.71 per barrel.

Industrial shares also underperformed after General Electric (GE) cut its dividend by half and dialed back its profit forecast for 2018. GE shares ended the week lower by 11.1%, extending their year-to-date decline to 42.4%. The S&P 500’s industrial sector lost 1.1% for the week.

In the bond market, U.S. Treasuries moved in a curve-flattening trade, sending the 2yr-10yr spread to its lowest level since 2007. The yield on the benchmark 10-yr Treasury note dropped five basis points to 2.35%, while the 2-yr yield climbed six basis points to 1.72%.

Following this week’s events, investors still strongly believe that the Fed will raise rates next month, with the CME FedWatch Tool placing the chances of a December rate hike at 100.0%.

(Excerpts from Briefing.com)

Dollar: Dollar Tracks Weekly Loss

Bonds: Long End Remains Strong

Commodities: Crude falls back after six-week rally

Gold and Silver continue to strengthen and Copper falls for a second week. Baker Hughes total U.S. rig count increased by 8 to 915 following last week’s increase of 9.

Agriculture: Soy breaks down, Corn continues decline, Wheat falls back

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

Week 47 is a shortened trading week with only three and a half trading sessions. The market is usually uneventful as it awaits Black Friday.

Monday 20 to 24 November (Week 47)

The forty-seventh week of 2017 (wk47) is bullish over all timeframes on our seasonal models on the SPY and DIA.

Screen Shot 2017-11-19 at 10.43.52 AM

The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 47;

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Key Economic Dates

In the US, the most important events are the FOMC minutes release, existing home sales and durable goods. In the UK, investors will be waiting for the Autumn Budget. Elsewhere, flash PMIs for the Euro Area, Germany, France and Japan will also be in the spotlight.

Mon 20 November

Tue 21 November

Wed 22 November

Thu 23 November

Fri 24 November

SUMMARY

Yields have closed to scary records. The 2/10 spread is now at 2007 levels like a deja-vu.

Yields

Other indicators are starting to reveal weakness in this bull run and the usually reliable seasonal statistics have been rubbished in the last two weeks – usually a reliable sign of changing sentiment.

With the shortened week ahead and all that Central Banking attention, I will be abstaining from any trading until after Black Friday weekend.

Happy Hunting!

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Comments Off on Weekly Market Update – 13 November 2017 BMO

Weekly Market Update – 13 November 2017 BMO

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A Taxing Release

Stocks got off to a good start this week, hitting new record highs on Monday and Wednesday, but retraced their gains in the latter half–a move that was nominally attributed to the release of the Senate’s tax reform bill. More likely, however, this week’s loss was the result of some profit taking following a largely uninterrupted two-month rally. The S&P 500 and the Nasdaq shed 0.2% apiece, while the Dow lost 0.5%.

The financial sector paced this week’s retreat, which is fitting considering the group played a leadership role in the market’s most recent bullish run; the financial sector jumped 11.4% from September 8 to November 3, while the benchmark S&P 500 added 5.1%. Dow components JPMorgan Chase (JPM) and Goldman Sachs (GS) lost 3.9% and 1.7% this week, respectively.

Industrial shares also struggled, with transports showing particular weakness; the Dow Jones Transportation Average dropped 2.6%.

Meanwhile, the energy sector outperformed, finishing with a gain of 1.1%. The group benefited from an increase in the price of crude oil, which touched its highest level in more than two years; WTI crude futures finished higher by 2.0% at $56.75/bbl. Heightened tensions in the Middle East, which could potentially disrupt crude production in the region, were largely credited for the move.

Saudi Arabia’s Crown Prince Mohammad bin Salman ordered the arrests of some of the country’s most prominent political and business figures on allegations of corruption. In addition, Saudi Arabia ordered its citizens to leave Lebanon after accusing the country of declaring war, citing the presence of Iranian-backed Hezbollah members within the Lebanon government.

Back in the U.S., earnings season continued this week–albeit with fewer notable companies on the docket–but headlines were focused on M&A developments. Sprint (S) and T-Mobile US(TMUS) lost 7.2% and 3.6%, respectively, after announcing over the weekend that they could not reach a merger agreement.

Meanwhile, chipmaker Broadcom (AVGO) slipped 3.2% after bidding $70 per share (in cash and stock) for Qualcomm (QCOM), which, conversely, ended the week higher by 4.5%. There were also reports that the Department of Justice would require the sale of CNN before it would approve AT&T’s (T) acquisition of Time Warner (TWX), but later reports said that claim was false.

Also of note, Walt Disney (DIS) and 21st Century Fox (FOXA) were reportedly in discussions regarding a sale of assets to Disney from Fox in recent weeks.

On the political front, the Senate on Thursday released its version of a tax reform bill, which called for delaying a cut in the corporate tax rate to 20% from 35% by one year and differed from the version that the House unveiled last week in several other key areas–including deductions related to state and local property taxes.

The two chambers will have to hammer out those differences in order to put the bill on the president’s desk for approval, and uncertainty surrounding Congress’ ability to do just that were cited by some as the main catalyst for Wall Street’s weakness in the latter half of the week.

Following this week’s events, investors still strongly believe that the Fed will raise rates next month, with the CME FedWatch Tool placing the chances of a December rate hike at 100.0%.

(Excerpts from Briefing.com)

Dollar Erases Morning Dip

Bonds: Long End Leads Market Lower

Commodities: Crude keeps on rallying for fifth week

Gold bounces, Silver continues to strengthen and Copper retreats. Baker Hughes total U.S. rig count increased by 9 to 907 following last week’s decrease of 11

Agriculture: Soy consolidates, Corn falls back, Wheat strengthens

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

Week 46 is the sixth and final week of Q3 Earnings Season with WMT ending the season on Thursday BMO.

Monday 13 to 17 November (Week 46)

The forty-sixth week of 2017 (wk46) is bullish over the last five years on our seasonal models but divergent over the last 10 and 15 years.

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The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 46;

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Key Economic Dates

In the US, the most important releases will be inflation, retail trade, industrial production and housing data. Investors will also be waiting for: UK inflation and unemployment; preliminary GDP growth for Japan and Germany; China factory output, retail sales and fixed investment; Australia employment and India consumer and producer inflation.

Mon 13 November

Tue 14 November

Wed 15 November

Thu 16 November

Fri 17 November

SUMMARY

Wrapped up Batch 92 in Singapore last night. Now the work for these traders really begins.

22886063_10155773595973665_3695228533275433156_n 23509314_10156680357237656_5266476139996045679_o

In the meantime, the US market is looking tired over the last three weeks. The coming week will test its resilience but I won’t be betting against the bulls just yet.

Happy Hunting!

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Comments Off on Weekly Market Update – 06 November 2017 BMO

Weekly Market Update – 06 November 2017 BMO

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DEXES

Bulls Hurdle a Heap of Headlines

The equity market moved higher once again this week, with all three major indices settling at fresh record highs. The tech-heavy Nasdaq led the charge, adding 0.9%, while the Dow and the S&P 500 climbed 0.5% and 0.3%, respectively. Small caps underperformed, sending the Russell 2000 lower by 0.9%.

Some of the week’s most notable headlines came out of the nation’s capital, including details on the House’s tax reform bill, which were released on Thursday. Highlights of the bill include an immediate–and permanent–reduction in the corporate tax rate from 35.0% to 20.0%, a repeal of state and local tax deductions–with the exception of a $10,000 limit for property taxes, a limit for mortgage interest deductions on new home loans of less than $500,000 (adjusted from $1,000,000), and no major changes to 401(k) tax laws.

Stocks initially sold off in reaction to the bill, but quickly bounced back.

Elsewhere in Washington, President Trump nominated Fed Governor Jerome Powell for the position of Fed Chair, and the Federal Open Market Committee unanimously voted to leave the fed funds target range at 1.00%-1.25%, as expected. The U.S. central bank reiterated its belief that the economy will continue to expand at a moderate pace and said nothing to alter the market’s expectation for a rate hike in December; the CME FedWatch Tool places the chances of a December rate hike at 100.0%, up slightly from 99.9% last week.

The Employment Situation Report for October crossed the wires on Friday, showing below-consensus nonfarm payrolls (+261,000 actual vs +300,000 Briefing.com consensus), nonfarm private payrolls (+252,000 actual vs +307,000 Briefing.com consensus), and average hourly earnings (0.0% actual vs +0.1% Briefing.com consensus). Still, the market took the report in stride as it confirmed that the labor market is still strong, but that strength hasn’t resulted in a pick up in wages–and thereby inflation.

As for earnings, several tech heavyweights reported their quarterly results this week, including Apple (AAPL) and Facebook (FB). The two companies finished the week higher, adding 5.8% and 0.6%, respectively, after both beat earnings and revenue estimates. The S&P 500’s technology sector (+1.8%) finished at the top of the week’s sector standings.

The energy sector (+1.7%) also outperformed, moving in tandem with the price of crude oil, which jumped 3.3% to $55.66/bbl–marking its highest close since July 2015.

On the downside, the consumer discretionary, health care, industrials, and materials sectors struggled, losing between 0.5% and 0.8%. Within the industrial group, transports showed particular weakness, sending the Dow Jones Transportation Average lower by 1.8%. The telecom services group (-2.6%) finished at the very bottom of the leaderboard once again, extending its 2017 loss to 17.4%.

(Excerpts from Briefing.com)

Reviewing Friday’s economic data, which included the Employment Situation Report for October, the October ISM Services Index, the September Trade Balance, and September Factory Orders:

Dollar Climbs Despite Elusive Wage Inflation

Bonds Yields: Strong Week Ends on Higher Note

Commodities: Gold falls further, Silver and Copper bounce, Crude rallies for fourth week

Baker Hughes total U.S. rig count decreased by 4 to 909 following last week’s decrease of 15.

Agriculture: Soy bounces, Corn strengthens, Wheat continues to consolidate 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

Week 45 is the fifth week of Q3 Earnings Season with the bulk of the retail and tech issues announcing their results.

Monday 06 to 10 November (Week 45)

The forty-fifth week of 2017 (wk45) is mildly bearish across all the average timeframes on our seasonal models.

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The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 45;

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Key Economic Dates

In the US, important releases include the preliminary reading of the Michigan consumer sentiment and consumer credit. In Asia, the spotlight will take: China trade, consumer and producer prices, Japan machinery orders and Hong Kong and Indonesia GDP growth. Investors will also be following UK industrial output, Euro Area retail sales and the RBA interest rate decision.

Mon 06 November

Tue 07 November

Wed 08 November

Thu 09 November

Fri 03 November

SUMMARY

It is an extremely busy period for me now so please accept my apology for not having a Monthly Report for November.

To keep it short, I am still bullish albeit cautiously bullish and will only be trading the high probability stuff in a conservative fashion until we get a decent correction. The market is looking more and more nervous as it climbs higher even as the US economy continues to show strength and evidence that this rally could be sustained. The flattening yield curve is definitely an ominous sign for the months ahead but valuations, the biggest concern now, are becoming ridiculous.

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Happy Hunting!

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Comments Off on Weekly Market Update – 30 October 2017 BMO

Weekly Market Update – 30 October 2017 BMO

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DEXES

Tech Rally Leaves Stocks With Yet Another Weekly Gain

Facing its first weekly loss since the week ended September 8, the stock market rallied on Friday, underpinned by the latest batch of earnings, which featured impressive results from mega-cap names like Amazon (AMZN 1100.95, +128.52), Microsoft (MSFT 83.81, +5.05), and Alphabet (GOOG 1019.27, +46.71). The three companies finished at new record highs, as did the S&P 500 (+0.8%) and the tech-heavy Nasdaq (+2.2%). The Dow (+0.1%) also moved higher, but finished a ways behind its peers due to select underperformers.

Stocks began the week on a lower note as investors cashed in on last week’s record highs, but reclaimed their losses on Friday, thanks to an impressive batch of technology earnings. The major indices finished the week in positive territory, with the Nasdaq, the Dow, and the S&P 500 adding 1.1%, 0.5%, and 0.2%, respectively. The S&P 500 and the Nasdaq settled Friday at new all-time highs.

The S&P 500’s technology sector (+2.9%) kept the broader market afloat with little help from its peers, easily settling at the top of the sector standings. The group was underpinned by Microsoft(MSFT), Alphabet (GOOG), and Intel (INTC), which added between 4.8% and 7.4% on Friday after reporting better-than-expected earnings and revenues for the third quarter.

Amazon (AMZN) also surged on Friday, jumping 13.2%, after beating both top and bottom line estimates. The company’s positive performance boosted the consumer discretionary sector, which finished the week with a gain of 1.1%.

On the downside, the health care sector (-2.1%) struggled this week, with biotechnology names leading the retreat. Celgene (CELG) showed particular weakness, ending the week lower by 19.1%, after missing revenue estimates for the third quarter and lowering its 2020 long-term financial targets on Thursday.

The consumer staples sector also lagged, moving lower by 1.5%. Within the group, CVS Health (CVS) plunged 9.8% following unconfirmed reports that the pharmacy retailer has made an offer to acquire managed health care company Aetna (AET) for more than $200 per share. Aetna shares ended the week higher by 7.6%.

On the data front, the advance GDP report showed that the U.S. economy increased at annual rate of 3.0% in the third quarter (Briefing.com consensus 2.4%), marking the second straight quarter the annualized rate has been 3.0% or higher. However, the headline number was inflated by a change in inventories, while real final sales decelerated to 2.3% from 2.9% in Q2.

In other words, the U.S. economy is proceeding largely at the same ho-hum pace.

Elsewhere, speculation as to who will become the next Fed Chair continued this week, and it appears increasingly likely that current Fed Chair Janet Yellen will be replaced by either Fed Governor Jerome Powell or Stanford University economist John Taylor. Bloomberg reported on Friday that President Trump is leaning toward Mr. Powell.

Following this week’s events, the CME FedWatch Tool places the chances of a December rate hike at 99.9%, up from 93.1% last week.

(Excerpts from Briefing.com)

Currencies: Weekly Gain Extended

The U.S. Dollar Index is higher by 0.4% at 94.95, extending this week’s gain to 1.3%. The solid advance comes after three weeks of sideways action that had the index trapped inside a narrow range between 92.7 and 94.3. The greenback recorded the bulk of this week’s gain during yesterday’s rally against the euro, but today’s session has seen a bit more of the same. A better than expected advance look at Q3 GDP (actual: +3.0%; Briefing.com consensus: 2.2%) supported today’s uptick in the dollar while an independence declaration in Spain’s richest autonomous region added to the negative sentiment surrounding the euro, which slid to its lowest level since late July.

Bonds Yields: Curve Steepens on Earnings and Economic Data

U.S. Treasuries ended Friday on a higher note, trimming some of their losses from the earlier portion of the week. The market began the day on a lower note and saw a bit more selling in response to a better than expected advance reading of Q3 GDP (actual: +3.0%; consensus: 2.2%). The morning retreat pressured the market into the neighborhood of Wednesday’s low, but that level held, and the subsequent reversal accelerated after Bloomberg reported that President Trump is leaning towards appointing Jerome Powell as the next Chairman of the Federal Reserve. The late-morning spike was followed by sideways action into the close. This week’s selling sent the 10-yr yield higher by five basis points while the 2s10s spread ended the week at 83 bps, up two basis points from last Friday.

Commodities: Metals fall, Crude rallies for third week

Baker Hughes total U.S. rig count decreased by 4 to 909 following last week’s decrease of 15.

Agriculture: Soy drops further, Corn and Wheat consolidate 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

THE WEEK AHEAD

Week 44 is the fourth week of Q3 Earnings Season with the bulk of the industrials and energy issues announcing their results.

Monday 30 October  to Friday 03 November (Week 44)

The forty-fourth week of 2017 (wk44) is bullish across all the average timeframes on our seasonal models.

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The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 44;

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Key Economic Dates

It will be a busy week in the US with the Fed’s monetary policy meeting and the jobs report. Other key data include trade, PCE prices and ISM PMIs. Elsewhere, the BoE and the BoJ will also provide an update on their monetary policy. Other important releases are UK Markit PMIs; Eurozone GDP growth and inflation; Japan industrial production and unemployment and China PMIs.

Mon 30 October

Tue 31 October

Wed 01 November

Thu 02 November

Fri 03 November

Earnings (highlights) Calendar for the week of October 23rd

The busiest week of earnings season sees no less than a dozen of the DOW components on the line. Besides the DOW pieces, we’re also getting numbers from many big and significant players such as, GOOG, AMZN, HAL, LMT, GM, GD, NOC, T, UPS, FCX, LVS, AMGN, F, MO, CELG, BIDU and LLL to name a few.

SUMMARY

The last time the NASDAQ outpaced the DOW by more than 2% was in 2002. Soon after, the market went into a tailspin.

FriDex

Let’s hope history won’t repeat itself. In the meantime, the Nikkei extended its run to close the week above 22,000 for the first time in 21 years, since July 1996.

Singapore’s seasonally adjusted unemployment rate edged down to 2.1 percent in the September quarter of 2017 from 2.2 percent in previous three quarters, preliminary estimates showed. It was the lowest jobless rate since the third quarter 2016. Consumer prices in Singapore increased 0.4 percent from a year earlier in September of 2017, the same pace as in the prior month and line with market expectations. The inflation figure remained the lowest since April, as food inflation was similar to the preceding month while cost of transport increased at a slower pace.

On the whole, there is little cause for worry that any recession is likely in the coming months but the market continue to get more and more overbought. That correction we’ve been waiting for may never come … but then there’s always those famous last words.

Happy Hunting!

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