October 2018

Stock Market Observations:

October 11, 2018

The SPX has dropped from 2940.91 on Oct. 3 to 2745 today. This is a 6.6% fall in six trading days. Since August 22,2018, the 10-year treasury note yield has risen from 2.81% to a high of 3.24% made on Oct. 5th. The trade war talk vis a vis China has eroded confidence that a solution is near. The November 6th elections loom and their results remain in question. The national political rhetoric is divisive on all sides. Declines often occur quickly and sometimes because panic driven selling ensues as we saw yesterday. This is a normal part of liquid markets movements. It is not pleasant.

The key question, has the market peaked for this cycle? Markets do not die of old age or a sudden swoon in sentiment We saw a 10% drop this past February. Tops are put in over long periods and sometimes end as prices go parabolic. We again see fear not euphoria.

Earnings reports are about to commence for Q3 and they will be up more than 20%. Interest rates are historically low, as is inflation.

Market leadership may change as the cycle matures. Growth stocks have led this cycle with tech names in the lead, but they periodically experience some big drops along the way shaking out non-believers.

The latter part of any calendar year is often positive for the U.S. stock market. September and October can be bumpy but November-January are typically strong months. Post midterm election years are historically bullish.

We expect the SPX 2766 area will start to bring in buyers as it represents the 200-day moving average. The RSI -Relative Strength Index- is now down to 21 this is a super low not seen since 2014. This is a bullish buy zone.

Nasdaq just had its worst month since 2008 as profit taking has led to fearful selling.

Warren Buffet got rich buying great companies during panics and staying the course over the long term.

Should you wish to talk, feel free to call.

All the best,

Doug

Disclaimer: These stock market observations are confidential and proprietary. They are for informational purposes only and are not intended to be used, and may not be used, as investment, legal, accounting, tax, or other advice. No express or implied representation or warranty is being made with respect to their accuracy or completeness. No obligation exists to inform the recipient when the information herein is no longer current or accurate. These observations do not constitute an offer to sell or a solicitation of an offer to buy any securities or interests in any investment vehicles managed by CFA or an associated person or entity, or to provide investment advisory services.