Markets Flashing Technical Warnings About More Downside Ahead. Free ETF picks and premium stock picks to help weather the storm.
Here’s a summary of the day’s most important market developments:
Treasury Yields: The benchmark 10-year note yield reached a 16-year high, nearing 5%. This rise is seen as exerting pressure on equities.
Federal Reserve's Stance: Jerome Powell, the Federal Reserve Chair, hinted at potential further rate hikes due to ongoing concerns about inflation. Despite aggressive rate hikes last year, Powell indicated that the strong economy and tight labor markets might necessitate additional hikes.
Market Sectors: The rate-sensitive real estate sector was the worst-performing S&P 500 sector, declining by 2.4%.
Major Indices: The Dow Jones fell by 250.91 points (0.75%), the S&P 500 declined by 36.6 points (0.85%), and the Nasdaq Composite dropped by 128.13 points (0.96%).
Volatility Index: The CBOE Volatility (fear) index reached its highest closing level since March.
Labor Market: A report from the U.S. Labor Department indicated a decrease in unemployment benefit claims, marking a nine-month low. This shows a robust labor market even after the central bank's significant rate hikes since March 2022.
Earnings Reports:
Netflix: Shares surged by 16.1% after announcing price hikes in the U.S., U.K., and France, and reporting an addition of 9 million users in Q3.
American Airlines: Shares increased by 0.8% following positive quarterly results. However, airline stocks had previously dropped due to United Airlines' profit forecast falling short of analysts' expectations.
Tesla's Performance: Tesla shares declined after the company missed Wall Street's expectations for Q3 on gross margin, profit, and revenue. Elon Musk, Tesla's CEO, expressed concerns about the impact of high interest rates on demand.
Trading Volume: The trading volume on U.S. exchanges was 11.82 billion shares, higher than the 20-day average of 10.50 billion.
Market Breadth: Declining stocks outnumbered advancing ones on both the NYSE and Nasdaq.
Market Milestones: The S&P 500 reported 2 new 52-week highs and 37 new lows, while the Nasdaq Composite had 15 new highs and 370 new lows.
Comprehensive Cheat Sheets Tutorial Here
Whenever we see short-term market forecast oscillators, Factors 9 and 10, reading “Danger,” we should expect technical damage, or confirmation of it. The probability for stock downside follow-through is quite high in market conditions like the ones shown below. Sometimes there can be fake-out rallies lasting at most a couple of days, but more often than not professionals sell any positive pre-market gains immediately after the opening bell.
Market Conditions
I’m avoiding attempting to be a hero as far as long trades go. I’m staying on the sidelines as far as incorporating new bullish risk. But, smart traders emphasize relative strength to build bullish watchlists for downside washouts. Here is a list of ETFs that may be getting sold with the “bathwater”, but relative strength indicates they’re going down less than the market, and opportunistic institutions are more likely accumulating these shares ahead of any market turnaround.
You’ll find this ETF list concentrated in industry grops related to energy services, pipeline companies, oil exploration & production, and refining..
In our premium section today, we’ll take a look at stocks in strong industry groups showing positive relative strength vs. the market overall. Since interest rates are soaring, these companies borrowing needs low, and debt relative to equity value is minimal. Moreover, they generate positive free cash flow. Energy stocks will be well represented here as well.
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