Sentiment moves financial markets. And shifts in sentiment (and therefore major market moves) usually occur at the moment market participants are at their most optimistic or most fearful. But sometimes it can simply be a turn of the calendar. The period between June 30th and September 30th was the worst quarter for the S&P 500 (SPX – down 8.7%) since 2011 when global investors feared a relapse to the conditions of the financial crisis. Since September 30th, the SPX is up 7.5%, and now quickly approaching what can only be called a MASSIVE technical resistance level between 2050 and 2100 (which includes the index’s 200 day moving average at 2060):
With the start of the fourth quarter it feels as if investors have left their angst behind and once again embraced the mantra that got them this far “don’t fight the Fed”. Suddenly everyone is throwing caution to the wind.
This month’s strong gains in the broad market have totally disregarded less then stellar news on the single stock front. Just this week we saw a meaningful downgrade to forward guidance from the largest retailer on the planet, Walmart, causing the stock to lose $30 billion in market cap. The SPX paid no mind. Yesterday we saw NFLX, a stock that has captivated the minds of investors this year (up more than 100%), lose 8% of its value on an earnings and subscriber miss, yet high valuation tech peers like AMZN and FB screamed higher. Yeah there have been outliers like Nike’s strong results and some better than expected (vs very low expectations) in bank stocks. But all in all, corporate America is telling you that not only are things slow now, but the guidance looks even worse. We are obviously early in Q3 earnings season, but what’s apparent is that the relative strength of the dollar remains a headwind, while lower commodity prices offer little relief on strained profitability. I fully expect a narrow group of sentiment leaders like AMZN, FB, GOOGL, HD and SBUX to outperform during this period, possibly even getting back AAPL and DIS. But remember that all this speaks to a narrowing of the 6 year market rally after a quarter where some serious technical damage was done.
Draw the lines anyway you like in the SPX, but the recent double bottom (Aug 24th and Sept 29th) off of the uptrend that was in place since the 2009 financial crisis lows is THE line in the sand:
More importantly for the here and now, the SPX is now approaching prior support of the uptrend since late 2012. That should now serve as important resistance at (you guessed it) 2100. I remain cautious to committing new capital to equities.