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The Bulls are Back, but for How Much Longer?

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U.S. stocks bounced back strongly on Thursday, as upbeat corporate results drove gains on Wall Street after a disappointing previous session. Although volatility pulled back sharply on Thursday, the general trajectory appears to be higher, leaving some analysts concerned about the bull market’s sustainability the rest of the year.

Stocks Bounce Back

All of Wall Street’s major indexes put up solid gains in New York, with the large-cap S&P 500 Index adding 0.8% to 2,585.64. Nine of 11 sectors contributed to the positive result, with telecommunications services adding 1.8%. Shares of consumer staples rose 1.6%, while technology-as-a-sector added 1.3%.

The only decliners on Thursday were energy and utilities, which shed 0.6% and 0.4%, respectively.

The Dow Jones Industrial Average also put up sharp gains, adding 187.08 points, or 0.8%, to 23,458.36. Twenty-three of the Dow’s 30 index members finished higher.

A strong showing in the technology sector drove massive gains in the Nasdaq Composite. The tech-laden average climbed 1.3% to close at 6,793.29.

Upbeat Earnings

Quarterly results from Dow blue-chips Wal-Mart (WMT) and Cisco (CSCO) were the main catalysts for the gains on Thursday.

Wal-Mart exploded on both the top and bottom lines thanks to surging online sales. The retailer earned an adjusted $1 a share on $123.18 billion in revenue. The company reported that U.S. comparable-store sales rose 2.7% year-over-year, the thirteenth consecutive quarter with positive results.

Global tech firm Cisco also beat analysts’ expectations, finally ending an eight-quarter streak of revenue declines. The company reported $12.136 billion in revenue for the first quarter of 2018. Adjusted per-share earnings came in at 61 cents. Cisco also estimated that second quarter revenues would grow between 1% and 3%.

Earnings season is winding down, with the majority of companies posting better than expected results. As of Nov. 10, the blended earnings growth rate for the S&P 500 was 6.1%, according to financial research firm FactSet.

Bull Market Showing Signs of Fatigue

Stocks may have come back strong on Thursday, but the underlying trend shows the bull market is showing signs of fatigue. Record highs have been harder to come by and much smaller in terms of growth than at other periods during the year. Many leading measures also indicate that sectors such as technology are overvalued, and have been for some time.

One of the most convincing signs that the bulls are slowing their advance is the behavior of the CBOE VIX. Known as the “fear index,” the VIX measures investor sentiment over the next 30 days. When the VIX rises, it usually means stocks are on the decline. On the flip side, a fall in the VIX is generally associated with rising stock prices.

Volatility has been creeping higher for the past two weeks, and on Wednesday, reached the highest level since the summer. The fear index declined more than 10% on Thursday as stocks resumed their uptrend.

The VIX has been undervalued for quite some time. Normally trading at or around 20, the volatility index has spent most of the year between 10-15, including multiple stints in the single digits.

Although we are in the best six months of the year for equities, the next few months could prove more difficult than we’ve grown accustomed to for most of 2017. The equity market’s outlook is complicated by a myriad of factors, including President Trump’s proposed tax reform.

Earlier this week, Republican Senator Ron Johnson announced his opposition the tax plan put forward by the Senate. As it currently stands, there’s a pretty good chance corporate tax reform will take years to materialize.

Disclaimer: The writer owns U.S. stocks, cryptocurrencies and other financial assets. 

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 649 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Market Overview

Market Update: U.S. Stocks Dragged Lower by Financials, Energy Companies; China Rebounds

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U.S. stocks finished mostly lower on Monday, as brisk selloffs of financials and energy shares offset modest gains in the technology and communication sectors. A large relief rally in China failed to ignite a similar revival in Europe and North America as concerns over global growth dampened investors’ appetite.

U.S. Stocks Sputter

The S&P 500 Index opened in positive territory before wobbling during the morning session and eventually turning lower in in afternoon trade. The broad index settled down 0.4% at 2,755.88, with a majority of sectors finishing in the red. Energy and financials were the biggest decliners, each falling more than 1% as a sector.

Modest gains in tech pushed the Nasdaq Composite Index to higher ground. The benchmark rose 0.3% to close at 7,468.63.

Dow industrials declined 126.86 points, or 0.5%, to 25,317.48. DowDupont Inc. (DD), American Express Co (AMX) and Goldman Sachs Group Inc (GS) were among the biggest decliners.

European markets also headed for losses on Monday, with all major continental bourses finishing in the red. The Euro Stoxx 50 Pr index closed down 0.7%,

China’s Biggest Rally in Three Years

Chinese markets exploded higher on Monday, with the mainland indexes posting their biggest single-day advance in almost three years following reassuring comments from government officials last week.

The benchmark Shanghai Composite Index surged 4.1% while the CSI 300 Index closed 4.3% higher, its largest advance since November 2015. Hong Kong’s Heng Seng Index rose 2.3%.

Government officials ranging from the Vice Premier to the heads of the People’s Bank of China talked up the domestic economy last week, reassuring investors that the ongoing trade war with the United States would not have a material effect on the nation. President Trump has implemented tariffs on more than $250 billion worth of Chinese imports, making whole on a campaign promise to hold Beijing to account for its unfair trade practices. According to the International Monetary Fund, the trade spat will result in both economies growing 0.2 percentage point slower next year. This will also lead to a downshift in global growth.

Last week, China reported annual GDP growth of 6.5% during the third quarter, the slowest since 2009. On Friday, the U.S. Department of Labor is expected to release preliminary Q3 GDP figures.

Lackluster Session for Cryptocurrencies

Risk-off sentiment in global equity markets in hasn’t translated into higher demand for bitcoin and other digital assets. On Monday, cryptocurrency prices traded slightly to the downside, erasing minor gains made during the previous session. At the time of writing, the total market capitalization of all coins was just over $209 billion, according to CoinMarketCap.

The bitcoin price swung back below $6,500, though losses were generally well contained. Ethereum, XRP and bitcoin cash all traded slightly lower on a 24-hour basis.

Digital currencies are experiencing a downshift in volatility as well as in trade volumes, with investors unwilling to commit to either direction. Recent history has taught us that prolonged periods of lateral moves are usually followed by sharp declines in subsequent sessions.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 649 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Market Overview

Cautiously Flying

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Hi Everyone,

It’s only Monday and already it seems to be one of the most exciting weeks of the year for the financial markets. Asian stocks are flying this morning (the reason for this below) despite some clear signs that investors are still cautious.

One of these signs is the price of gold, which has spiked during the sell-off two weeks ago (purple circle) but is now showing signs that it may be ready to stretch higher (yellow rising support line).

The fact that gold is trading near its highs is not necessarily any indication in and of itself. The upcoming Diwali Festival in India is traditionally a time when gold prices tend to rise.

As we’ll see below, investors are still happy to pour money into this market but they are doing so very carefully right now.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

  • Chinese Support
  • Mark’s Market
  • Even more stable crypto

Please note: All data, figures & graphs are valid as of October 22nd. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets

As we mentioned above, Chinese stocks are flying. The China 50 index is up an astonishing 5.3% as of this writing. This is largely due to strong support from President Xi Xinping…

We’ve seen these type of stunts before from President Trump but this behaviour does seem to be new for the Chinese leader.

The timing is impeccable here too. As we’ve been watching, the Chinese stock markets have been on the ropes after retreating more than 30% since the year’s highs. However, the Xi’s gambit may have fallen short of the mark.

As we can see below, the red line being defended on the China50 is just above 10,500 points. Whereas, to break out of the current range to the upside we’d need to see levels above 12,000.

Cautious Like an Oak Tree

For legendary investor Howard Marks, the markets are not so binary. The co-founder of Oaktree Capital does see the current markets as expensive but adds that this doesn’t mean we’re about to see a crash. The economy is doing well and therefore it pays to be in the market, but defensively.

We all know that markets are cyclical. They go through bull times and bear. However, not every rise is a bubble and not every decline is a crash. In fact, most market moves are a lot more moderate.

Marks’ theories are always fascinating even if they sometimes differ from my own, especially when it comes to bitcoin. I’ve been enjoying his email alerts for a while now, but this interview on Bloomberg opened my eyes in a new way.

Crypto Markets

Crypto markets remain steady and are showing even more signs of stability. Tether seems to have regained most of its composure and is now trading within 2 cents of the $1 mark, right where it should be.

In the meantime, volumes on other stable coins have stepped up to further stabilize the market. In this graph from theblockcrypto.com we can see USDT’s dominance of the stablecoin market dropping sharply since the incident on October 15th.

As we see more stable coins join the market, the safer the market will become. According to CCN there are more than 50 active stablecoins at the moment with more coming out all the time. At the moment, it seems that the one eating into Tether’s market share is Paxos, which is both regulated and rising quickly in volumes.

Wishing you an amazing week ahead!

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

Best regards,
Mati Greenspan
Senior Market Analyst

Connect with me on….

eToro: @MatiGreenspan | Twitter: @MatiGreenspan | LinkedIn: MatiGreenspan | Facebook:MatiGreenspan

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 133 rated postsSenior Market Analyst at Etoro.com.




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Analysis

Pre-Market Analysis And Chartbook: Chinese Stocks Extend Rally

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Monday Market Snapshot

Asset Current Value Daily Change
S&P 500 2,773 0.22
DAX 30 11,629 0.65%
WTI Crude Oil 69.42 0.07%
GOLD 1,226 -0.28%
Bitcoin 6,406 -0.10%
EUR/USD 1.1513 0.01%

Global stock markets started out the week on a positive note, with Chinese equities surging higher, extending their late-day gains from Friday. European and US indices are not that enthusiastic though, and from a technical standpoint, today’s early rally didn’t change anything yet, with the declining trends in the majority of risk assets being intact. With the economic calendar being empty today, technicals, the EU-Italy debate, and the Khashoggi-assassination will likely be in focus.

Shanghai Composite Index CFD, 4-Hour Chart Analysis

The Shanghai Composite gained the most in two days in over 2 years, with the active help of PBOC, and the benchmark is now testing the previous support that held up Chinese stocks during the bear market. The index broke above one declining trendline and that could open up the way for a larger correction, even if the broader trend is still clearly bearish. The 2700 level could be in the center of attention this week, especially if global markets can also rally following two weeks of turmoil.

S&P 500 Futures, 4-Hour Chart Analysis

US stock futures are broadly higher in European trading, but the momentum of the move is very weak, and the gains of the Asian session are already eroding. From a technical standpoint, the short-term picture is clearly bearish and the charts suggest a test of the lows this week, especially as small-caps continue to underperform and market internals are negative.

Treasury yields are unchanged so far, as Italian assets are up today, and safe haven flows slightly reversed in early trading. The short-end of the yield curve is still very close to its recent highs, and with the European Central Bank’s rate decision on tap this week, we expect further fireworks in bonds, and in turn equities.

Currencies Already Active as Emerging Markets Still in Trouble

EEM (Emerging Markets ETF), 4-Hour Chart Analysis

While the Chinese rally helped equities across the board, other emerging markets lagged on Friday, and despite today’s bounce their technical position still suggests troubles ahead. The EEM ETF is set to open well below the break-out level near 41, and with that, the segment is among the weakest parts of the global market. While the most vulnerable currencies are still performing very well, stocks are seemingly sinking into a grueling bear market.

Elsewhere in currencies, we already saw relatively large moves to start the week, as the EUR/USD rallied up to 1.1550 thanks to the optimism regarding the Italian budget. The most traded pair already sunk back in the red, and the Dollar is higher against most of its peers, reversing some of Friday’s pullback. The Japanese Yen is the weakest so far, due to the Asian risk-on shift, and gold is also lower today as safe-haven assets are struggling.

Copper Futures, 4-Hour Chart Analysis

Besides gold, the key commodities are higher thanks to the Chinese rally, but both crude oil and copper are still below key resistance levels, as technicals are unchanged, so far today. The WTI crude contract is trading below the $70 per barrel level, while copper advanced up to the declining trendline of the consolidation pattern that has been dominating trading in the metal for almost a month.

ChartBook

Major Stock Indices

Nasdaq 100 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 4-Hour Chart Analysis

VIX (US Volatility Index), 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

FTSE 100 Index CFD, 4-Hour Chart Analysis

EuroStoxx50 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

Forex

EUR/USD, 4-Hour Chart Analysis

USD/JPY, 4-Hour Chart Analysis

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/USD, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Gold Futures, 4-Hour Chart Analysis

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 380 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Hacked.com and its team members have pledged to reject any form of advertisement or sponsorships from 3rd parties. We will always be neutral and we strive towards a fully unbiased view on all topics. Whenever an author has a conflicting interest, that should be clearly stated in the post itself with a disclaimer. If you suspect that one of our team members are biased, please notify me immediately at jonas.borchgrevink(at)hacked.com.

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