Stocks have had a very impressive 5 week run to start the Fourth Quarter.
2 weeks ago today the NASDAQ closed above the 5000 marker for the first time since mid August and really hasn’t looked back. The S&P 500 pierced the 2100 level this past Monday, and apart from a .10 miss yesterday has held it all week.
The challenge from the “What have you done for us lately” department is the market now stares directly at 6 months of resistance between 2100 and 2130 on the S&P 500. From February through August earlier this year, market rallies were turned back well over a dozen times between 2100 and 2130.
Yes, there were new highs in March, April and May, near misses in June and July, but always a short lived move, met by more sellers than buyers, thus forming the 6 month broadening top that led to the August break down.
Right Now, sporting a 10%+ rally off the late September lows, the market has hit a fierce wall of resistance. It looks short on lactic acid and needs a breather if it’s going to make a serious run at new highs before the end of the year. Market internals have gone neutral at best the last 3 days after Monday’s impressive 4 to 1 adv/decl reading.
The 10 year note moving above the 2.20% threshold has negated an all out “Risk On” trade. Third Quarter earnings are about 80% behind us with the Missing Revenues, Beating Bottom Line EPS theme dominating for the third consecutive quarter.
There is no doubt stocks have notable accomplishments 5 weeks into the Fourth Quarter:
They have successfully decoupled from the price of Oil which was a weight around the markets neck for most of the last 12 months. It’s possible the consumer is finally feeling the positive effect of lower gasoline prices, which has been slow to materialize. We’ll get a much better read on this as we get into the heart of the holiday shopping season.
There’s been much less focus on China and emerging markets. There are still plenty of issues with China, but the market does not feel nearly as constrained by them as during the Third Quarter.
Merger and Acquisition activity has been not only brisk, but downright frantic!!
The IPO market continues to be steady with the most significant deal in many years finally getting done with little fanfare, that being Japan Post Service.
The parts of this deal began trading 2 days ago and traded well over 50% higher from their issue pricing. This was the second largest global IPO ever (Alibaba) and easily the largest privatization of a state sovereign enterprise ever brought public through the capital markets.
The further significance is that it had been postponed at least twice previously during the last 6 to 8 years. Don’t discount the significance of this deal getting done and holding some of its post IPO gains through year end.
Stock Market Hitting the Wall at the 20 Mile Mark?
Where do we go from here: Today we get a very significant NFP and jobs report at 8:30 AM. It’s ironic that 2 weeks ago we had what was billed as the “Least significant FOMC meeting in Years” that actually turned out to be very significant due to the increased “Hawkish Tone” toward an initial rate hike.
Before that FED meeting/statement the odds of a December rate hike was barely 25% and 2 days ago those odds had risen to 60%.
Predicting a FED move on rates has been a loser’s game all year. None the less, this jobs report holds a lot of cards for the FED. Take a close look at NFP adds and revisions as well as the Average Hourly Earnings.
Also, no doubt the market’s reaction to a couple of FED speakers later in the day.