Morning Minutes 10/15/2018

Morning Minutes

Gold and Natural Gas Rally as Stocks Turn Lower Again

October 15, 2018
9:00 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

Friday’s relief rally has turned out to be a dead cat bounce after all with world stock markets resuming their retreat this morning. The Hang Seng and the Nikkei have started the week down 1.4% and 1.9% respectively. US index futures are pointing toward a 0.3% decline for the Dow and S&P today, European markets are mixed with the FTSE down slightly and the Dax up slightly.

Fear gauges are on the rise again today. The VIX is up another 3.0% to 25 while Gold is up 1.0% to $1,230/oz. Treasury yields are creeping upward again, keeping a headwind in front of stocks. To me, however, the main factor impacting US stocks at the moment is that they remain richly valued compared to their overseas counterparts and with earnings season getting going this week, US markets appear vulnerable to a potential series of individual stock selloffs that could add up if companies can’t keep up with expectations on results or guidance.

Ahead of the onslaught of earnings news, investors appear to be taking money out of risk markets and parking it in defensive havens. There are a number of other issues floating around out there that could impact trading in some of the markets some of the time like Brexit talks, Italy’s budget, US-China trade tensions, US-Saudi Arabia political tensions, the US midterm elections and more but their effect may be fleeting.

For example, look at energy markets today. Amid growing tensions between the US and Saudi Arabia over the Khashoggi disappearance/possible murder, Brent Crude is up 0.8% this morning and WTI is up 0.6%. Amid fewer headlines, Natural Gas is up 2.47% as investors increasingly recognize the potential for shortages if we get a cold winter this year with storage levels running 17% below their five-year average.

US economic data is mixed today. Retail sales fell 0.1% in September, significantly worse than the 0.5% increase the street had expected. This disappointment was partially offset by a better than expected Empire State Manufacturing report that came in at 21.1, above the 20.0 street estimate.

Meanwhile the long running sad saga of struggles at Sears continues. After closing down in Canada last year, Sears Holdings in the US has filed for Chapter 11 Bankruptcy. Eddie Lampert has resigned as CEO and the company plans to close 142 of its approximately 700 stores by the end of the year.

Relative Strength and Sector Rotation Report:

Rising interest rates continue to weigh in interest sensitive sectors. US Banks at best didn’t move upward in the relative strength rankings following Friday’s generally positive initial round of results and some banks declined heading into this week’s announcements. Canadian banks have been falling in their rankings as well.

With Gold on the rise once again, Gold miners continue to rise up the SIA Charts relative strength rankings.

SIA Wealth In The Media:

Colin Cieszynski was quoted by Friday on the near-term outlook for natural gas.

U.S. oil benchmark gains for the session, but weekly loss is first in five weeks

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