The stock market is caught deep in ‘no man’s land’
Where is this market headed? It’s anyone’s guess.
The best description of the docile trading lately may be Mark Newton’s characterization: no man’s land.
“Everybody is sort of scratching their heads about this market,” Newton, an independent technical analyst and financial blogger, told Marke****ch. “It is a challenging market to have any conviction, really on either side [up or down],” he said.
Newton added that the level of disgruntlement in the market is high given that the S&P 500 (SPX) has hovered around 2,140 since June
Underscoring that point, the S&P, the Dow Jones Industrial Average (DJIA) and the Nasdaq Composite (COMP) are trading nearly flat over the past 30-day period, according to FactSet data.
“It is tough to argue that we’ve seen the level of complete washout that might help support higher prices,” Newton said. He also points out that just about a third of S&P 500 stocks are trading above their 50-day moving averages, suggesting that the stocks are losing momentum and that rallies haven’t been beneficial to market breadth.
Part of the sideways trade stems from uncertainty surrounding the upcoming U.S. presidential election between Democratic nominee Hillary Clinton and Republican candidate Donald Trump, even as the winner appears to be more apparent with the final presidential debate in the books.
The markets may have more room to fly after Election Day on Nov. 8.
But central bank moves seem to be a bigger influence. The belief that the Federal Reserve will hike rates in December — not at its next meeting in November with the White House in play — is near its highest of the year, with the market pricing in a roughly three-out-of-four chance that a hike will occur in the Fed’s final meeting of the year, according to CME Group data.
Those probabilities have lifted the dollar, as measured by the ICE U.S. Dollar Index (DXY) as high as 98.40, its highest since February. A rising buck may, supported by climbing rate-hike hopes, continue to put pressure on earnings by multinational corporations.
European Central Bank President Mario Draghi on Thursday didn’t really help matters much, although he may have quelled some fears that the central bank could end its stimulus efforts abruptly.
Marke****ch’s Tomi Kilgore points out that the Dow has closed below its 50-day moving average for 30 days straight, but hasn’t dipped below its 200-day average. It is the longest such stretch since in about three decades.
The Dow has traded below its 50-day moving average for 30 days straight.© Provided by Dow Jones & Company, Inc. The Dow has traded below its 50-day moving average for 30 days straight.
Although that factoid may be apropos of nothing, it’s one more statistic that highlights the level of torpor the market is experiencing.
Optimism, however is a persistent force. Andrew Adams, analyst at Raymond James, is encouraged by reports that S&P 500 companies may break out of their earnings recession in the third quarter. Still, he admits that the market has work to do to stay above water.
“The S&P 500 still has some work to do to get over the 2,160 zone that will likely attempt to halt the gains, but I am hopeful it can leave that key 2,120 support level in the dust here soon. After all, life is simply easier when you have some support underneath you,” he writes.
William A. Delwiche, investment strategist at Robert W. Baird, says although the “absolute trend has stalled,” bullish trends remain in emerging markets and in broker/dealer shares. Those areas tend to be leading indicators of the market’s overall performance, Delwiche says.
Banks and brokers are in line to benefit from higher rates, which support their business models. The NYSE Arca Securities Broker/Dealer Index (XBD) which tracks the broker-dealers is up about 0.4% over the past 30-days and 7.9% over the past three months (see chart below).
Newton says that a move for S&P 500 futures (ESZ6) back above at least 2,150 is necessary to argue that a larger rebound is underway in the market, while a move under 2,116.75 (Monday’s low) would be a negative.
“For now, it’s simply “no man’s land for U.S. equities,” he wrote Wednesday.
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The stock market is caught deep in ‘no man’s land’
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