Weekly Market Analysis – 26 Nov 2018 BMO

WEEK IN REVIEW – 19 to 23 NOVEMBER 2018 :
Energy, Tech Stocks Crushed as S&P 500 Loses Yearly Gains

The S&P 500 fell 3.8% on this holiday-shortened trading week, erasing its gain for the year. The Dow Jones Industrial Average lost 4.4%, the Nasdaq Composite lost 4.3%, and the Russell 2000 lost 2.6%.

There was palpable sense of real angst about the market’s prospects with market commentary beginning to emphasize the growing risk of a bear market. Factors contributing to that outlook have included rising recession risk; widening credit spreads; the message being sent by the sharp losses in cyclical sectors and former leadership stocks/sectors; lack of buy-the-dip success in November, calling into question the prospects of a seasonal rally; and burgeoning calls to bolster defensive positioning in investment portfolios.

Energy and tech stocks took the brunt of the damage with the energy (-5.1%) and information technology (-6.1%) sectors posting heavy losses this week. The consumer discretionary (-4.3%), communication services (-4.0%), materials (-3.5%), and industrial (-3.2%) sectors also had poor performances.

WTI crude, which has been pressured by ongoing supply concerns and decreasing demand, dropped 9.2% to $51.28/bbl this week and extended its decline to 33.3% from last month’s four-year high. Oil prices were pressured on Tuesday after some speculation that Saudi Arabia might not force an oil production cut after U.S. President Donald Trump defended the United States’ relationship with Saudi Arabia in the wake of the killing of Jamal Khashoggi. U.S. crude stockpiles also rose for the ninth consecutive week, according to the U.S. Energy Information Administration’s weekly crude inventory report.

The tech sector, in particular, has been prone to liquidation efforts that have aimed to reduce exposure to a crowded sector running into concerns about a cyclical slowdown, valuations, and increased regulatory scrutiny. In addition, a lack of leadership and the continued inclination to sell into strength have translated into a lack of buying interest.

Apple (AAPL) shares took a hit after a Wall Street Journal report indicated the company cut its production orders for all three new iPhones it launched in September. Regarding the iPhone XR, Apple reportedly slashed its production plan by up to a third of the approximately 70 million units it had asked some suppliers to produce between September and February. Apple has fallen 21.3% since providing a disappointing outlook for the holiday quarter on November 1.

Facebook (FB) shares continued to struggle, losing 5.6% this week, amid ongoing negative publicity surrounding the social network. CEO Mark Zuckerberg was reportedly not happy with COO Sheryl Sandberg over the handling of the Cambridge Analytical scandal, according to a WSJ report. Also in the report, Mr. Zuckerberg’s newly-adopted, aggressive leadership style has not fared well with key executives, some of whom have resigned.

Conversely, the real estate (-1.5%) and utility (-1.4%) sectors were the only groups to finish with weekly losses under 2.0%.

This week featured a list of earnings reports from notable retailers. Reports from Lowe’s (LOW), Target (TGT), Kohl’s (KSS), L Brands (LB), and Ross Stores (ROST) reflected ongoing concerns over gross margin pressures, elevated inventory levels, disappointing same-store sales, and included some cautious guidance. On the other hand, retailers Urban Outfitters (URBN), Best Buy (BBY), Foot Locker (FL), and Gap (GAP) released more positive reports. Separately, Deere (DE) missed top and bottom line estimates.

In other corporate news, a U.S. appeals court refused to stop generic versions of Johnson & Johnson‘s (JNJ) prostate-cancer drug Zytiga from entering the market, according to Bloomberg. Also, Chinese authorities approved United Tech‘s (UTX) acquisition of Rockwell Collins (COL) for $140/share in cash and stock.

U.S. Treasuries ended the week on a mixed note. The 2-yr yield added three basis points to 2.83%, and the 10-yr yield decreased two basis points to 3.05%. Meanwhile, the U.S. Dollar Index increased 0.4% to 96.94

Overseas, the Asia-Pacific Communications Summit concluded on Sunday without the release of a joint communique due to the ongoing trade disagreement between United States and China. On a related note, U.S. Trade Representative Robert Lighthizer released a report on China’s intellectual property practices, alleging that China has not altered its “unfair, unreasonable, and market-distorting practices” that led to the imposition of tariffs. China’s Shanghai Composite lost 3.7% this week.

(Economic Excerpts from Briefing.com)


Tuesday 20 November:

Single-Unit Strength Missing from October Housing Starts and Building Permits Report 

Housing starts increased 1.5% month-over-month in October to a seasonally adjusted annual rate of 1.228 million units (consensus 1.230 million) from an upwardly revised 1.210 million (from 1.201 million) in September. Building permits slipped 0.6% to a seasonally adjusted annual rate of 1.263 million (consensus 1.260 million) from an upwardly revised 1.270 million (from 1.241 million) in September.

The key takeaway from the report, however, is that there wasn’t any strength in single-unit permits or starts, which were down 0.6% and 1.8%, respectively, month-over-month and down 0.6% and 2.6%, respectively, year-over-year.

Wednesday 21 November:

Leading Indicators Growth Slows in October 

The Conference Board’s Leading Economic Index increased 0.1% in October (consensus 0.1%) after increasing a revised 0.6% (from 0.5%) in September.

The key takeaway from the report is that the Conference Board believes that while the Leading Index still points to robust growth in early 2019, the rapid pace of growth may have already peaked. The Conference Board expects longer-term growth to moderate around 2.5%.

Lower Aircraft Orders Weigh on October Durable Orders Report 

Durable Goods orders for October decreased 4.4% (consensus -2.6%) after decreasing a revised 0.1% (from +0.8%) in September. Excluding transportation, durable goods orders increased 0.1% (consensus +0.4%) after a revised 0.6% decrease (from +0.1%) in September.

The key takeaway from the report is that the headline decline was driven by a drop in aircraft orders while motor vehicle and parts orders increased modestly.

Initial Claims Miss Expectations 

Initial claims for the week ending November 17 increased by 3,000 from last week’s revised rate of 221,000 (from 216,000) to 224,000 (consensus 215,000). Continuing claims for the week ending November 10 decreased by 2,000 from last week’s revised level of 1.670 million (from 1.676 million) to 1.668 million.

The key takeaway from the report is that even with the upward revision to last week’s reading, claims remain not far above multi-decade lows. This week’s miss is likely the result of economists basing their estimates on last week’s unrevised reading.

Existing Home Sales Snap Six-Month Skid in October 

Existing home sales increased 1.4% month-over-month in October to a seasonally adjusted annual rate of 5.22 million (consensus 5.20 million). The October reading represented the first month-over-month increase in seven months. Total sales were 5.1% lower than the same period a year ago.

The key takeaway from the report is that even with the October increase, the level of sales remains at levels from late 2016 as higher mortgage rates and a limited supply of lower-priced homes weigh.

Consumer Sentiment Index Dips in Final November Reading 

The final reading of the University of Michigan Index of Consumer Sentiment for November ticked down to 97.5 (consensus 98.3) from 98.3 in the preliminary reading.

The key takeaway from the report is that the modest downtick was due to changes in sentiment among different income earners. Those in the bottom third of the income distribution reported an increase in sentiment while those in the top third of the income distribution reported a decrease in sentiment. There was no change in sentiment among Democrats and Republicans after the midterm election.

Friday 23 November:

U.S. Markit Manufacturing PMI- Prelim 55.4, October 55.7; Services PMI- Prelim 54.4, October 54.8

Initial read on Black Friday 2018: Traffic okay, online strong, discounts similar to last year

Overall, Black Friday doesn’t have the sense of urgency as in the past and feels more like a busy regular weekend day in many of the stores. Like last year, they are not too concerned and don’t believe too much weight should be given to the slow Black Friday traffic, given many of the promotions were available for the past couple of weeks.

Early in-store traffic seemed best at Best Buy (BBY), Kohl’s (KSS), Macy’s (M), Target (TGT) and Walmart (WMT). As expected, electronics and toys seem to be winning categories. The colder weather in the Northeast appears to be boosting sales of cold weather gear, such as coats, scarves, gloves, sweaters and boots.

Other International Events of Interest


Friday 23 November
Energy Stocks Drag on Broader Market amid Falling Oil Prices

The S&P 500 lost 0.7% on Friday in what was a shortened, low-volume trading day on Wall Street. Friday’s volatile session extended the benchmark index’s weekly losses to 3.8%.

Meanwhile, the Dow Jones Industrial Average lost 0.7%, the Nasdaq Composite lost 0.5%, and the Russell 2000 finished flat on Friday.

The oil-sensitive energy sector greatly underperformed the broader market with a loss of 3.3%, as oil prices continued to fall. WTI crude fell 6.1% to $51.28/bbl, extending its decline to 33.3% from its October 3 high. A Wall Street Journal report indicated that Saudi Arabia and OPEC are considering a disguised production cut to satisfy President Donald Trump. Specifically, the cartel would retain current output targets, first set in 2016, which would imply a production pullback because Saudi Arabia is allegedly overproducing by nearly 1 million barrels a day.

FANG stocks also struggled on Friday with Facebook (FB) and Apple (AAPL) leading the retreat. Apple reportedly resumed production of its 2017 iPhone X amid shrinking demand for its 2018 iPhone X Max model, according to IBN; and has also reportedly lowered the price of its iPhone XR in Japan to increase sales, according to the WSJ. Facebook and Apple shares dropped over 5.0% and 10.0%, respectively, this week.

On the other hand, the consumer staples (+0.3%), health care (+0.1%), and utility (+0.1%) sectors closed on a higher note.

Also, many companies within the consumer discretionary sector (-0.4%) were on display as consumers flocked to retailers for the sales-driven Black Friday shopping event. Though financial media commented on consumer traffic trends, the small sample size should not be used to draw final conclusions about the strength of holiday sales across the country.

In the bond market, the 2-yr yield added one basis point to 2.83%, while the 10-yr yield shed one basis point to 3.05%. The bond market will officially close at 2:00 PM ET. Also, the U.S. Dollar Index, which tracks the dollar’s performance against six major currencies, rose 0.2% to 96.94.

Overseas, global equities closed Friday on a mixed note. China’s Shanghai Composite led Asian markets lower with a loss of 2.5%, while Italy’s MIB led the European advance with a gain of 0.6%.

Market Internals – Friday 23 November 2018

Dollar: Holiday Week Ends on Upbeat Note

The U.S. Dollar Index closed up 0.2% at 96.94, reclaiming the remainder of its loss from last week. The Dollar Index faced some selling on Thursday, but that decline was erased in early Friday morning trade. The greenback maintained an upward bias during a quiet U.S. session, while the euro was been pressured by another reminder of weakening economic data in the eurozone. Meanwhile, the pound has been pressured by misgivings ahead of this weekend’s EU leader summit where British Prime Minister Theresa May is expected to present a final version of Brexit deal.

Bonds: Quiet Session Produces Slight Gains

U.S. Treasuries ended the abbreviated week with modest gains. Treasuries started the cash session on a higher note, as the market responded to a shaky outing from markets in China (-2.5%) and Hong Kong (-0.4%) and a weak start in U.S. equities. Treasuries built on their gains during the first hour of the session, but mid-morning action saw 2s, 5s, and 10s return to their opening levels in a move that coincided with a rebound in stocks. For its part, the long bond continued backtracking until reaching its flat line. Treasuries remained near their intraday lows during midday action, which saw the stock market dip back toward its opening low. Unsurprisingly, today’s participation was on the light side with trading volume drying up into the afternoon.

The yield curve flattened as longer maturities’ yields fell against the 2-year yield. The spread between the 5s10s narrowed to 17bps from 18bps the previous week while the 10s30s remained unchanged at 26bps from 26bps the previous week. The 2-30 spread has narrowed to 49bps from 53bps a week ago.


The Bloomberg Commodity Index settled at 81.84, lower than 83.91 the previous week as energy and grains fell.

WTI oil continued falling off that proverbial cliff, settling the week at $50.42. The spread between WTI and Brent narrowed to $8.38 from $10.30 the previous week as Brent settled at $58.80 p/b.

EIA petroleum data for the week ended November 16

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.9 mln barrels from the previous week. At 446.9 mln barrels, U.S. crude oil inventories are about 6% above the five year average for this time of year. Total motor gasoline inventories decreased by 1.3 mln barrels last week and are about 6% above the five year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories decreased by 0.1 mln barrels last week and are about 7% below the five year average for this time of year. Propane/propylene inventories decreased by 2.0 mln barrels last week and are about 3% below the five year average for this time of year. Total commercial petroleum inventories decreased last week by 0.2 mln barrels last week.

Natural gas inventory showed a draw of 134 bcf vs a build of 39 bcf in the prior week. Working gas in storage was 3,113 Bcf as of Friday, November 16, 2018, according to EIA estimates. This represents a net decrease of 134 Bcf from the previous week. Stocks were 620 Bcf less than last year at this time and 710 Bcf below the five-year average of 3,823 Bcf. At 3,113 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count decreased by -3 to 1079 following last week’s increase of +1.

Metals: Gold rises, Silver and Copper fall

Agriculture: Grains Decline


Week 48 (November 26 to 30)

According to our 5, 10 and 15 year seasonal models;

Benchmarks Indices (21 year average) for wk48:

Week 48 Key Economic Dates

In the coming week, the FOMC minutes will be keenly watched, alongside US second estimate of Q3 GDP growth, personal spending and PCE prices; UK consumer confidence and monetary indicators; Eurozone business survey, inflation and jobless rate; Japan consumer confidence, unemployment and flash Nikkei manufacturing PMI; China NBS PMIs; and Q3 GDP estimates for India, Canada and Brazil.

Sun 25 November

Mon 26 November

Tue 27 November

Wed 28 November

Thu 29 November

Fri 30 November



It is amusing to read a lot of the headlines this past week, making the last couple of weeks sound like a bloodbath when in fact, the benchmarks are not even in correction territory (a Correction is -10% from the previous high) let alone bear market territory (a Bear market is a correction of more than -20% from the previous high). Fact is, the benchmarks are only down by 6% to 7%, they are all negative for the year and all under their respective 200DSMAs … again.

The drop is February was way worse but the headlines today are screaming like its 2008 all over again. Okay, maybe it is the start of another 2008 but I am not a fortune-teller and I see things for what they are. And right now, I see a healthy American economy that is no where near recessionary levels.

All I see is a normal market correction – one that is way overdue and not likely to be sustainable – that could be the start/continuation of a longer period of  volatility or the start of another 2008 or the bottom of this volatility that could start an upswing into Christmas.

Who the hell knows? I don’t know where these experts buy their crystal balls from but I sure would like to have one.

RememberKISS” …

If you don’t want to lose your trade, book your profits early. No one ever lost a trade by booking profits.

Happy Hunting!


Thursday 28 November @ 7:00pm

For more than 12 years of educating, mentoring and supporting hundreds of participants (annually) in the arts and sciences of Finance and Economics, the Pattern Trader™ Tutorial has evolved to become the most sought-after boutique-styled class that caters to individuals, professionals and families that are serious about their finances and their prospects as we move into the future.

The small class environment and tutorial-styled approach gives the Tutorial a conducive environment that allows for close communication and interaction between the mentor and the participants.

The hands-on style makes the Tutorial very practical for anyone who requires a start from the ground up. It is the perfect beginning for anyone who wishes to take that first step in improving their financial and economic literacy.

If you’re looking to make a huge difference in your financial life and get the most value our of your education investment, there’s no better choice than the time-tested and well reputed Pattern Trader™ Tutorial

Register for our next Introductory Session here:


Download our promo slides here:
The Pattern Trader™ Tutorial 2019


The schedule for the FEBRUARY 2019 Batch is here:
Pattern Trader™ Tutorial – February 2019


Screen Shot 2017-10-01 at 1.38.39 PM

Connect with me at LinkedIn


If you enjoyed this post, please consider to visit Pattern Trader Tools, leave a comment or subscribe to the feed and get future articles delivered to your feed reader.


No comments yet.

Sorry, the comment form is closed at this time.