Upcoming US Events for Today:
- Chicago Fed National Activity Index for August will be released at 8:30am. The market expects -0.05 versus -0.15 previous.
- PMI Flash Manufacturing Index for September will be released at 8:58am. The market expects 54.0 versus 53.9 previous.
Upcoming International Events for Today:
- German Manufacturing PMI for September will be released at 3:30am EST. The market expects 52.2 versus 51.8 previous. PMI Services is expected to show 53.0 versus 52.8 previous.
- Eurozone Manufacturing PMI for September will be released at 4:00am EST. The market expects 51.7 versus 51.4 previous. PMI Services is expected to show 51.0 versus 50.7 previous.
The Markets
Stocks traded lower on Friday as the continued budget impasse and speculation of an October taper event took a bite out of stocks. Many equity benchmarks have given up the vast majority of Wednesday’s gain, which was fueled by a surprise announcement that the Fed would hold at the current pace of bond buying, deterring a taper decision to future meetings. The S&P 500 closed the session precisely at the point of previous broken resistance around 1709; short term support around this level may become apparent. The selloff was accompanied by much higher than average volumes as quadruple witching and a Dow Jones Industrial Average rebalance had investors shuffling portfolios prior to the session close. The week following the September options and futures expiration event is typically very negative for equity markets. Since 1990, the S&P 500 has averaged a decline of 1.06% during the week following September expiration. Only 4 years, or 17% of periods, have actually bucked the tendency for losses. This negative seasonal event accompanied by negative pressures following a Dow Jones rebalance suggests that the week ahead could be a struggle for equity markets. Volatility seasonally remains prominent through to October, and stocks still have a ways to go to escape the negative influences that hit just prior to third quarter earnings season.
Since our last report, a number of equity benchmarks have broken out to new multi-year and all-time highs following Wednesday’s Fed "bump". The long-term trend of higher-highs and higher-lows remains intact, continuing a positive trend that has stemmed from last November’s low. However, short-term momentum indicators are showing signs of struggle as investors remain hesitant to buy equities at levels that some analysts are considering to be "fairly valued"; opportunities to find value in this market are very few, an event that often leads to waning upside momentum as buyers fail to accumulate. According to Factset, "the current 12-month forward P/E ratio is 14.6, well above the 5-year (12.9) and 10-year (14.0) averages". Lack of buying opportunities could continue to lead to these abrupt rises and sharp falls in stock prices, similar to what was experienced at the end of last week. Short-term momentum indicators are showing early signs of curling lower after hitting significantly overbought levels. The RSI surpassed 70 following Wednesday’s stock surge, but has since declined to 63, triggering a sell signal. The MACD is showing evidence of converging on the signal line, as indicated on the MACD histogram. And, the Stochastics have notably stalled above 90 and are showing very early signs of pointing lower. Downside risks in the near term continue to outweigh the upside reward, meaning that unfavorable risk/reward entry points exist at current levels.
Seasonal charts of companies reporting earnings today:
Sentiment on Friday, as gauged by the put-call ratio, ended bearish at 1.05. With options expiration and a broad market selloff, put options were met with sufficient demand to push the put-call ratio above the predominantly neutral range that has remained apparent over the past couple of months. Investors are cautious in becoming too bullish or too bearish given the recent market activity, which has seen significant swings since May.
S&P 500 Index
TSE Composite
