Weekly Wisdom: Bears Press Lower

Greetings fellow traders and welcome to your October 26th edition of Weekly Wisdom: Levels to Know and Moves to Look For!

Now let’s get to what we’re currently seeing in these volatile markets and what we have our focus on going forward.

Taking a look back on this week, October 23 – 27:

• Markets continued to sell off this week as interest rates and the $DXY dollar index continued to press higher, with the $VIX overall holding the bid that came into it starting a couple of weeks ago. We also saw some disappointing earnings reactions with $GOOGL and $META selling off and $MSFT initially trading higher but also selling off in the following days. $AMZN is set to report earnings Thursday after the close.  
• Data kicked off for the week on Tuesday with beats on flash manufacturing PMI at 50.0 vs 49.5 expected, as well as flash services PMI at 50.9 vs 49.9 expected. The Richmond Fed manufacturing index was inline at 3. 
• Wednesday gave us an update for new home sales which came with a beat at 759,000 vs 678,000 expected.  
• Thursday’s weekly unemployment claims were slightly higher than estimated at 210,000 vs 208,000 expected. Advance GDP q/q was a beat at 4.9% vs 4.5% expected. Advance GDP price index q/q was a beat at 3.5% vs 2.7% expected. Durable goods orders was a big beat at 4.7% vs 1.9% expected, with core durable goods orders m/m also beating at 0.5% vs 0.2% expected. Preliminary wholesale inventories m/m was a slight beat at 0.0% vs 0.1% expected, while the goods trade balance was inline at -$85.8 billion vs -$86.2 billion expected. We then saw a beat for pending home sales m/m at 1.1% vs -2.0% expected.  
• Friday, October 27 ends the week with earnings from $XOM and $CVX before the open. We then get the PCE price index m/m, core PCE price index m/m, personal income m/m, and personal spending m/m at 8:30 a.m. ET. We’ll also see revised University of Michigan consumer sentiment and inflation expectations at 10:00 a.m. ET.

Here’s what we are eyeing next week, October 30 – November 3:

Level Highlights:

• $SPX futures continued lower this week as bears regained control last week and continued to press lower. $MSFT, $META, and $GOOGL reported earnings this week and have all sold off lower than the start of their reports, dragging $QQQ and the rest of the market lower with them.   
• Bears broke the 4300 level mentioned last week in a big way this past Friday, closing below the 200 day moving average for the first time since the regional banking crisis back in March and further pushing the weekly downtrend.
• At this point, bulls are either looking for some relief to come into the market from both the $VIX and interest rates, which may be sparked by some of the earnings reports we are set to see, or the Fed meeting coming next Wednesday. Or bulls are looking for a bigger washout with some type of capitulatory looking action / volume.  
• The next big support levels for $SPX futures are 4100 and 4050 unless bulls are able to recapture 4200 in a meaningful way. Bears remain in control but may start to feel some short squeeze pressure should we trade back above 4250. 
• $VIX continues to hold above 20 after the potential breakout warning we gave a few weeks ago. Bulls will ultimately need the $VIX to trade back down under 18 for real stability. A real washout in the market could bring the $VIX over 25 toward the 26-28 range which should serve as some resistance.

Upcoming News:

• Tuesday, October 31 starts the week off with the employment cost index q/q at 8:30 a.m. ET. This is followed by the S&P/Case-Shiller home price index y/y update at 9:00 a.m. ET. We’ll then get Chicago PMI at 9:45 a.m. ET, followed by the Conference Board’s consumer confidence index at 10:00 a.m. ET. $AMD will report earnings after the close.
• Wednesday, November 1 is a big day next week with the FOMC rate decision in the afternoon. The day starts off with ADP non-farm employment change at 8:15 a.m. ET. We’ll then see final manufacturing PMI at 9:45 a.m. ET, followed by ISM manufacturing PMI, JOLTS job openings, ISM manufacturing prices, and construction spending m/m all at 10:00 a.m. ET. Then at 2:00 p.m. ET we’ll get the rate decision from the Fed, followed by Powell’s press conference at 2:30 p.m. ET. No rate hike is expected at this meeting
• Thursday, November 2 starts off with weekly unemployment claims, preliminary non-farm productivity q/q, and preliminary unit labor costs q/q all at 8:30 a.m. ET. This is followed by factory orders m/m at 10:00 a.m. ET. $AAPL will report earnings after the close.
• Friday, November 3 ends the week with non-farm employment change, average hourly earnings m/m, and the unemployment rate at 8:30 a.m. ET. We’ll then see final services PMI at 9:45 a.m. ET, followed by ISM services PMI at 10:00 a.m. ET.

Here’s Your Chart of the Week:

Via JP Morgan: The inverse correlation between the DXY Dollar Index and equities is still evident with the $UUP attempting to break out of 30 this week. 

Source: https://twitter.com/WallStJesus/status/1716670401898577943/photo/1

SPY Daily Update:

$SPY daily chart continued lower this week, now trying to find some support in the 410-415 zone as we see some extension build out. Bears may get short squeezed should $SPY try to reclaim 420 soon, otherwise 410 and then 403 are further support levels below.

SPY Weekly Update:

$SPY weekly chart continues with the downtrend this week, breaking well below last week’s low. Support can be seen coming in at 410 and then 403 on any further downside. Bulls will have a lot of work to do to make this weekly chart look better.

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-Patrick Hawe

Disclosures

Patrick Hawe’s current positions:

*As of 3:08pm ET October 26, 2023

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