Market Analysis

S&P 500: Newton’s third law of motion; “what goes up must come down”

At the end of one of the most volatile weeks for the market this year, the NASDAQ 100, S&P 500, Dow Jones and Russell 2000 all finished lower.

All major sectors of the S&P 500 finished the week in the negative territory with both Google and Amazon missing analysts’ estimates in their third-quarter earnings reports, both the S&P 500 Technology and Communication Services came under pressure on Friday to end the day well in the red.

In the meantime, last Friday’s data from the US showed that the real Gross Domestic Product (GDP) expanded by 3.5% in the third quarter according to the first estimate of the US Bureau of Economic Analysis. Although this reading came in above the analysts’ estimate of 3.3%, the details of the publication showed that tariffs started to weigh on the economic growth with exports falling and rising imports increasing strongly.

Despite all the headlines, the VIX showed that volatility did not increase for the month and reached only half of the February 2018 spike, highlighting a lack of panic, despite the extent of the selloff.

Friday’s market action should be viewed as a downward correction with investors taking some profits out of the table by beginning to sell their portfolio mainly because it is going down and not because the fundamentals have worsened that much. There are two potential catalysts for a sharp recovery in the S&P 500 that investors should beware of, the US mid-term elections and any positive developments between China and the US trade war.

Since the beginning of 2018 until last Friday close, the US index turned negative with a loss of almost 0.5% but since the start of October, the S&P 500 dropped more than 8.5%. Nonetheless, the week ended on the left foot with a drop of 3.5% and on the daily basis closed red with almost 0.6% loss furthermore, it is in a distribution phase since late October.

On the last Friday session, the US index initially fell with a wide range but found enough support to trim some of its losses and managed to close in the middle of the daily range, in addition, closed within Thursday range, which suggests being clearly neutral, neither side is showing control.

The stochastic is showing an oversold market although is still displaying a strong bearish momentum.

So far, October can be seen as a black month because it has erased all gains for the current year on S&P 500 and also pushed it into the red. Since the beginning of the current month, the S&P 500 index dived although it managed to perform an upward correction in mid-October that short-lived after a bounce from the 10-day moving average. All three daily moving averages, the 10, 50 and 200 should provide dynamic resistance. Nonetheless, the price seems to be pointing to the 100 Fibonacci expansion at 2,589.56 that lines up with a daily support.

Watch out this week: 

The US Bureau of Economic Analysis will release the Core Personal Consumption Expenditure year-on-year in September on Monday, October 29th at 12:30 GMT (7:30 AM ET). Analysts’ are forecasting an unchanged reading coming in at 2%. This is a significant indicator of inflation.

Facebook Inc. will release its third-quarter earnings report on Tuesday, October 30th after the market close. It is one of the most extremely awaited events of the week. The consensus on Facebook earnings per share (EPS) forecast for the quarter is $1.46. The reported EPS for the same quarter last year was $1.59.

Apple is scheduled to report the fiscal fourth-quarter earnings on Thursday, November the 1st after the market closes and analysts forecast that Apple will generate earnings per share (EPS) of $2.78 for the September quarter, up from $2.07 a year earlier.

The US Department of Labor will present the nonfarm payrolls for October on Friday, November the 1st at 12:30 GMT (7:30 AM ET). Analysts are expecting a rise to 190K compared to the previous reading of 134K registered in September.

Usa500 is a CFD written over S&P 500 futures.


Usa500 Dec ’18 Daily Candlestick Chart

Usa500 Dec ’18 Daily Candlestick Chart


Written by Hugo O’Neill, External Analyst


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