Thursday, October 18, 2018 - Insight after the bell from Investopedia's Editor in Chief
#1 - Smoked
Another bruising day for investors, and we are only midway through October, the most volatile of all months. What started as a slight sell-off at the open turned into the red sea of losses as the DJIA shed 327 points or 1.27 percent, wiping out all the gains from Tuesday. The 2-year Treasury spiked to its highest levels since 2008 and there are pundits predicting the 10-year could climb to 4.5 percent, sending more shockwaves through the stock market. The spike in the 2-year Treasury note yield is a sign that investors see a lot of short-term risk in the economy.
They should. Larry Kudlow, the Director of the National Economic Council, who reports directly to President Trump, told the Detroit Economic Club that China has not 'responded positively', to the U.S. requests, er… demands. Former Fed Chief Alan Greenspan made an appearance on CNBC this morning and warned that the tightness in the labor market will lead to inflation and more populism. He also warned of 'irrational exuberance' in the stock market in 1996. The market proceeded to rally for 3 straight years after that and then exploded in the dot.com bubble catastrophe.
Today's was a broad sell-off, and one of the only green arrows was for the VIX. The Volatility Index is relishing in the October bonfires, kicking investor anxiety up to migraine levels and making us doubt our conviction.
Why it Matters: Volatility in October is normal, as we have been saying. What's different right now is the technical breakdown of key stocks and indexes in the markets. The S&P 500 has failed to break out above key resistance levels since this choppiness began. Instead of stabilizing and trading sideways, or rallying up to new resistance levels, it is breaking down below major support levels and appears to be continuing its drift lower. We broke this out for you as our Chart of the Day, down below. It's important.
What's Next? Friday, mercifully. Although we should not expect the level of volatility or concern to abate. These are tense times and institutional investors typically don't like to hold long positions into the weekend. Remember, institutions and big money managers like Blackrock and Goldman Sachs run this market. They have armies of traders and billions of lines of algorithmic code in a constant state of readiness to pounce upon momentum in either direction. The rest of us just try to ski in their wake and not get washed out. Far be it for us to say that the market will trade lower Friday, but this recent trend of lows interspersed with one day mega-rallies that don't carry through to the following day is not a sign of a healthy market in an uptrend.
Allocate accordingly.
Read More:
How To Spot A Sell-Off
How to Create a Risk Parity Portfolio Chart of the Day: The S&P 500 is threatening to breach a key support level...again!
As mentioned earlier the S&P 500 is headed towards moving below a major support level. One of the most closely watched technical support indicators – the 200-day moving average – does not seem to be doing its usual job of preventing the bottom from dropping out.
JC Parets, founder of AllStarCharts and one of our contributors, provided a very rare and bearish take (for him) on the current breakdown in the market. It's worth your time. These are the times that try investors' patience and conviction. We wrote about our threshold for losses and gains yesterday. Today's sell-off puts that question right back in our face. CONNECT WITH INVESTOPEDIA |
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