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Market Update - October 21, 2016

Economic Comment

3rd quarter earnings season is kicking off into high gear! The theme seems to be beating on earnings, but missing on revenues. This was the same theme as the 2nd quarter. Factset the company that is the “go to” for earnings, has reported that quarterly earnings have been trending flat to down for the past six quarters. (Factset Earnings Insight 10/14/2016) The S&P 500 is at an elevated price level with flat to trending lower aggregate earnings. One investment firm came out last week and thought that fourth quarter earnings would show overall earnings, “bending up”. That has yet to be determined; however we do have some big news in a couple of our indicators! So let’s review.

Bullish Percent’s

10 Week Bullish Percent (Short-term): October has been a rough month for this short-term indicator. Last week the 10 week sold off from 54% to 34%. Now oversold, the equity markets could have a one or two day bounce at any time.

Optionable Stock Bullish Percent (Intermediate term): BIG NEWS HERE. THIS INDICATOR IS NOW ON DEFENSE. As of Friday, October 14th, enough sell signals were registered to put this indicator on DEFENSE.

NYSE Bullish Percent (NYSEBP) (Longer-term): On October 12th this indicator went to DEFENSE! (Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500: The S&P 500 had a short term “line in the sand” at 2,120. That was slightly pierced last week as you can see on this faster chart. Short-term 2,145 is acting as resistance. The level of 2,150 to 2,175 needs to be gained on the upside to keep the intermediate term S&P 500 chart positive. If this week, those levels aren’t achieved, additional selling could happen fast. (Source: Dorsey Wright Website) 

S&P 500

SP50010.21.2016

Crude Oil: After consolidating for about 2 weeks, Crude has gone back to the June 2016 high. Least expected move would be a quick run to $60-65, similar to June 2015 levels. Chart is looking positive. (Source: Dorsey Wright Website)

Continuous Crude Oil 

CrudeOil10.21.2016

US 10-Treasury Note: the 10 year’s higher yields have remained stubbornly in place. 1.8% has been hit, with a slight back off. Big zone of resistance from 1.7-1.9%. It looks like the 10 year will stay in that range. (Source: Dorsey Wright Website)

10-year Treasury

10yearTreasury10.21.2016

Relative Strength: The current relative strength standings have Domestic Equities #1, Commodities #2, Fixed Income #3, International Equities #4, Cash #5 and Currencies at #6. (Source: Dorsey Wright Website)

Conclusion

Several of our major indicators have “flipped” to DEFENSE. Now this doesn’t mean that equity investors should run for the hills and sell everything. We suggest that individual positions be evaluated. October is typically tax loss selling season for mutual funds. Many stocks that have underperformed this year, (such as healthcare) could see additional downward selling pressure. We are still maintaining our defensive investment strategy, which could see global equity prices “float” lower in the near and intermediate term.

Have a great rest of the week and after an unusually warm couple of days, fall is expected to be back in full swing this weekend!

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