Category: Dr. Duke's Blog
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The trade war with China continues to haunt this market. The result is a sideways market with sudden and unpredictable twitches on the latest trade negotiation news. The Standard and Poors 500 Index (SPX) attempted to match the July highs in mid-September, but turned lower and declined modestly for about ten days before plunging on October 1st and 2nd. SPX declined to 2856 on Thursday before bouncing and recovering over half of the previous day’s losses. SPX gapped open Friday morning, broke through the 50-day moving average (dma) at 2942, and closed up 41 points at 2952. This particular market tantrum appears to have ended, but the storm will continue until we get confirmation of a China trade deal. Trading volume has generally remained below average for the past couple of weeks with a notable exception on Wednesday as we hit the lows for the week. Volume declined Thursday and Friday as the market recovered. The bulls have not given up on this market, but they are clearly nervous, and definitely not “all in”.

VIX, the volatility index for the S&P 500 options, opened the week at 17.2%, spiked to an intraday high of 21.5% on Wednesday, and then declined to close Friday at 17.0%. This remains a moderately high level of volatility that is worthy of caution.

The Russell 2000 Index (RUT) steadily trended lower from its high of 1585 on September 16th to a close of 1480 on Wednesday for a decline of nearly 7%. Russell is by far the most bearish of all of the broad market indices. Thursday’s intraday low at 1462 was close to the lows in August around 1456. RUT closed higher at 1500 on Friday, but remains about 1% below its 50 dma at 1521 and its 200 dma at 1523.

The NASDAQ Composite index lost about 5% in this pullback. NASDAQ bounced on Thursday, finding support at the lows from August and its 200 dma at 7720. NASDAQ closed Friday at 7982, up 110 points, or 1.4%. NASDAQ’s trading volume spiked on Wednesday’s gap opening lower, but ran at or below average the rest of the week.

This was a scary week for the markets. That gap opening lower on Wednesday spooked me, but when the broad indices recovered somewhat near the end of trading on Wednesday, I saw a glimmer of hope. That was confirmed on Thursday with the long lower candlestick shadows on all of the broad market indices. Traders saw those lows as a buying opportunity and that continued into Friday.

The bottom line for this market has not changed. The trade war with China and political squabbling are making traders nervous. The entertainment and scare mongering that masquerade as financial news was revved up on Wednesday as talking heads on the financial networks breathlessly repeated “manufacturing recession” all day. I long for the old days of neutral, but boring, financial anchors.

Nervous institutional traders hit the sell button on the basis of the lamest of rumors and investigate later. But then they quickly jump back on board lest they miss out on the gains.

It pays to be cautious and focus on solid blue-chip stocks. The following stocks remain above their 50 day moving averages and have made solid gains in this week’s otherwise scary market: NEE, EQIX, INVH and TGT.