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The Trend Is Your Friend Until This Threat Brings an End to It All

0 | By Shah Gilani

Last week was a good week for equity markets.

Employment data last week, which was considered to be important in terms of market sentiment, was mixed. The new payrolls number showing an additional 130,000 jobs added was light according to about half the analysts and pundits commenting on it.

But it could have been a lot lower, which a lot of other analysts were expecting. What actually bumped it up significantly was the hiring of census workers.

The overall unemployment number remained at 3.7%.

What could have been worse numbers turned sentiment positive and buying picked up.

But here’s why this uptrend may not last as long as Wall Street would like…

Where the Benchmarks Are Headed ’til the Trade War Picks Up Again

The Dow ended the week 394 points higher, or 1.5%. The S&P 500 was up 1.8% and the Nasdaq Composite rose 1.8% on the week.

All three major benchmarks broke out of their months long sideways trading ranges.

Even more encouraging, on the heels of the previous week’s nice upswing, last week volume was about 9% higher, though still somewhat muted.

One dark spot last week was the ISM falling a touch below 50, which indicated a manufacturing slowdown that could portend a recession in production.

But the good data was augmented, and the bad data overlooked when investors heard there would be a meeting in late October between trade war honchos from China and their U.S. counterparts in Washington.

No date was given, which markets didn’t care about. They got the kind of hopeful news on the trade war front that everyone agrees would move stocks higher.

Last week was a mixed bag for Treasuries and bonds, with yields rising somewhat but prospects for an almost guaranteed Fed rate cut of 25 basis points keeping a lid on any selling.

The yield on the 30-year Treasury at 2% now makes the S&P 500 with its dividend yield at 2%, at least equally attractive, which was another boost for stocks.

More importantly, the forward PE ratio on the S&P is 18. What’s really a positive for stocks in that data is the reciprocal of its PE, that’s the S&P’s earnings yield. That’s now 5.5%, a huge plus for equity investors.

One oddity on an otherwise good week was heavy betting on SPDR S&P 500 ETF, the “SPY,” which closed the week at 298.05. Options buyers, actually an individual or institution, bought 25,000 $261 strike puts expiring Friday. They lost on that bet.

But they also bought 50,000 September $265 strike puts that expire today. And they bought 70,000 $250 strike puts that expire September 11.

Either they are going to lose a lot of money, or they think they know something the rest of us don’t.

We’ll see.

Friday’s going to be a big data day with August retail sales expected to come in 0.1% higher over July’s unexpectedly good 0.7% rise. And the Consumer Sentiment Index for September from the University of Michigan, which is expected to rebound to 91 from August’s 89.9, its weakest since late 2016, should have traders’ attention.

The trend is your friend, until it isn’t. And the trend right now is up.

The Dow’s next resistance is 26,917. If it gets above there it’s going to try and make new highs.

The S&P 500’s next resistance is at 2971, above there and look for new highs.

The Nasdaq Composite’s next resistance is 8133, same goes here, above that and the sky’s the limit.

Given how much these benchmarks, especially the S&P 500, absolutely depend on big stocks to keep climbing (or clawing) up, it’s no surprise that the tech stocks are the real guns to look out for.

For one thing, tomorrow Apple should be releasing the new iPhone.

More than ever today’s consumers want, need, and devour every sort of technological improvement in every improvement.

The World Economic Forum has stated that we are on “the brink” of the Fourth Industrial Revolution and the introduction of 5G technologies will be the means to lead us through it.

By 2021 it’s predicted that eCommerce revenue will increase to $4.8 trillion, a 71% increase from 2018.

This growth is believed to be linked to the proliferation of 5G around the world.

This is the catalyst to a technological renaissance – opening the floodgates for an industry potentially worth up to $12 trillion – and YOUR opportunity at becoming one of America’s top earners.

Click here to find out more.

Sincerely,

Shah

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