Big Picture

Our overall Primary Trend Indicator moves from Positive to Neutral.

We still believe the S&P500, along with other major indexes, are in short term downtrends based on several factors such as Evergrande debt default issues in China, a slowing economy in China, Federal Reserve bond buying tapering and a decline in consumer spending amid higher inflation.

We believe indexes have another 5% lower but at which point would become oversold on a weekly moving average measure technically, and a decent entry point would present itself. We see weakness in mega cap stocks with Apple breaking below short term support levels along with Facebook and Amazon.

We also see pronounced weakness in Financials with credit card stocks breaking down. Amongst the bank stocks, Wells Fargo is the worst performing as some concerns exist within its credit and lending divisions. Until we can see some of the current macro risks abate, we remind investors to sell into resistance, use resistance as a point of entry for Put strategies and have an active stop limit strategy to protect gains and preserve capital

 

Changing Fundamentals

Monday:

No Major Economic Data

Earnings - Lennar

Tuesday:

US - Housing Starts estimated 1.58 million annualized rate, up from 1.543 million last month

US - Building Permits estimated 1.61 million annualized rate down from 1.63 million last month

Earnings - FedEx, Aurora Cannabis, Adobe, AutoZone

Wednesday:

US - Existing Home Sales (MoM/Aug) estimated at 5.89 million units vs. 5.79 million in July

US - FOMC Interest Rate Decision estimated no change

US - FOMC Monetary Policy Statement 

Earnings - General Mills, Blackberry, KB Homes, H.B Fuller

Thursday:

Europe - Various PMI Readings across major EU countries

US - Markit PMI (Sept) estimated 58.8 up from 53.8 in August

Earnings - Accenture, Darden, Rite Aid, Nike, Costco, Trip.com

Friday:

No Major Economic Data

No Major Earnings Reports

Focus List

Stock Market Update

We last issued a report on stock market direction at the beginning of September.  We had a bearish bias and since then the markets have turned lower with increased volatility.  Overall major stock indices are down between 2-5% in 2 weeks with some sectors of the market showing breakdowns.  And the mega-cap stocks like Apple and Facebook have started to show weakness and trading below short term moving averages.  If the mega-cap stocks rollover further we could see major indexes like the S&P500 move down towards longer term 100 day moving averages.  Another 4% lower from current levels.

Many companies have lowered their quarterly earnings estimates because they can’t access the supplies needed to meet demand.  Firms are incurring higher costs as a result, thus threatening profit margins.  On Thursday, U.S. retail sales beat expectations, a positive, but also a development that could make it more likely that the Federal Reserve will lower its bond purchases at a faster pace.  And the same day China reported a big miss in retail sales putting pressure on an already slowing global GDP.

In the US for example, an area of concern has been the recent slowing in housing activity, which as a percentage of GDP makes up about 12% of the economy. Although the housing market has remained strong, it’s not immune from outside economic forces, including inflation. Inflation essentially is an increase in the prices consumers pay for goods and services.  Next week the FOMC meets to decide interest rate policy and the pace of tapering bond buying.  With recent inflation data from many global economies showing inflation reminding persistent we believe this will cause the FOMC to quicken the pace of bond buying reductions while interest rates should remain unchanged.

Stock Market Update