View From The Hill: October 22, 2015

Commentary and Performance

Just the verbal promise of more QE coming out of Europe was enough to send stocks above some key resistance levels in today’s trading session. The S&P500 (SPY) closed at 2052.51 (+33.57 / +1.66%) and the Nasdaq-100 (QQQ) settled at 4503.22 (+89.70 / +2.03%). Lagging the market was the Russell-2000 (IWM), which failed to clear near-term resistance levels and ended the day at 1154.52 (+9.57 / +0.84%). Has anyone considered the market’s reaction should Mario Draghi fail to deliver an effective stimulus package that revives global growth?

The VIX is full capable of answering the above in a heart stopping beat but instead resumed its downtrend and declined to another short-term low at 14.45 (-2.25 / -13.47%).

Treasury rates declined a second consecutive day. The 10-Yr rate closed at 20.25 (-0.05 / -0.25%) and the 30-Yr dipped to 28.60 (-0.11 / -0.38%).

The Federal Reserve has deferred the interest rate hike that so many were anticipating and others were doubting and this is what sent the dollar into a bearish correction before it reconfirmed support at the 93-94 quadruple bottom levels. Credit for its explosive move today goes entirely to the ECB’s dovish announcement (hat tip to Mr. Draghi). The US Dollar Index closed at 96.45 (+1.39 / +1.46%).

In our two most widely followed commodities, Gold stepped down to at 1165.0 (-0.90 / -0.08%) and WTI Crude Oil found support at its 22-day moving average to settle at 45.49 (+0.23 / +0.51%).

The Dow Jones Real Estate Index achieved a new 3-month high and closed at 300.12 (+3.32 / +1.12%). Mixed results in housing data undermined the Dow Jones Home Construction Index which recouped most of its losses but still finished in negative territory at 591.60 (-8.16 / -1.36%).

Daily Chart Analysis

The benchmark index for stocks has broken out of its trading range and must now clear another level of resistance before its ultimate challenge at 2100. Today’s move was explosive. Look to 2020 as a new level of support from which stocks can build a more solid base. Otherwise, the rally is still overextended and vulnerable to sharp bearish retracement.

Click to enlarge

Market Breadth

• Advancers (2176) vs. Decliners (732).
• New 5-day highs (1043) significantly lagged the number of New 5-day lows (673)
• New 52-week highs (222) also trailed new 52-week lows (132)
• Bullish reversals (536) lagged Bearish reversals (128)

Volume Radar Alerts

Stock prices increasing on high volume

• McDonald’s Corp (MCD) @ 110.87 (+8.12%) on 312% volume surge
• Carlisle Companies Inc (CSL) @ 85.93 (+2.16%) on 305% volume surge
• CIT Group Inc (CIT) @ 46.14 (+15.70%) on 286% volume surge
• Polaris Industries Inc (PII) @ 109.95 (+1.97%) on 286% volume surge
• VMware Inc (VMW) @ 56.79 (+2.47%) on 272% volume surge

Stock prices declining on high volume

• Community Health Systems (CYH) at 26.30 (-35.14%) on 1264% volume surge
• Envision Healthcare Holdings Inc (EVCH) at 25.40 (-30.39%) on 1120% volume surge
• Cabela’s Inc (CAB) at 34.48 (-17.25%) on 945% volume surge
• GNC Holdings Inc (GNC) at 34.50 (14.24%) on 718% volume surge
• Westinghouse Airbrake Technologies Corp (WAB) at 83.74 (-5.43%) on 683% volume surge

Market Moving Events

Bullish

• Central Banks / Monetary Policy / Europe: As expected, the ECB’s latest announcement left interest rates unchanged at 0.5% as inflation and industrial production remain weak. Mario Draghi, head of Europe’s Central Bank, indicated the central bank’s flexibility and willingness to reconsider the size and duration of its existing QE program at $60bn/month.
• Economy / Consumer / UK: Great Britain’s Retail Sales in September-2015 were surprisingly strong, albeit a hat tip to Rugby World Cup. Monthly, they improved to 1.9% vs. estimates at 0.4% and previous revised at -0.4%. Annually, they advanced 6.5% vs. forecasts at 4.8% and previous revised at 3.5%.
• Economy / Consumer / Canada: Retail Sales in Canada for August-2015 exceeded estimates with results at 0.5% vs. estimates at 0.1% and prior revised at 0.5%. Year-over-year, they expanded at 2.8% vs. previous revised at 1.9%.
• Economy / Employment / USA: Unemployment Claims for the week of October-17-2015 were only 3k above last week’s 42-year low with a reading at 259k vs. consensus at 265k and previous revised at 265k. The 4-week moving average is 263.5k vs. consensus at 265.25k.
• Real Estate / Residential / USA: Existing Home Sales for September-2015 rebounded strongly to 5.5mm vs consensus at 5.35mm and prior revised at 5.3mm. Month-over-month at 4.7% vs. prior at -5.0% and  annually at 8.8% vs. prior at 6.2%, the report reflects a positive outlook for the housing market.
• Earnings or Revenues / Positive Surprises: Ebay (EBAY); Texas Instruments (TXN); McDonald’s (MCD)

Bearish

• Real Estate / Residential / USA: The appreciation rate of the FHFA House Price Index slowed to 0.3% vs. consensus at 0.5% and prior revised at 0.5%.
• Economy / Growth / USA: The Leading Indicators Index for September-2015 contracted to -0.2% vs. estimates at 0.0% and prior revised at 0.0%.
• Earnings or Revenues / Negative Surprise: American Express (AXP)

Neutral

• N/A