U.S. equity markets registered one of the single largest one day point swings of all time on Friday. Lifting markets on Friday, after four days of soft consolidation, were themes that don’t honestly speak to any shift in our economic or earnings outlook – which is why I remain cautious. Friday’s employment data was a big miss. Consensus expectations were calling for a gain of 203k on the month. The total for September fell meaningfully short by nearly 60k. Perversely, that surprise to the downside provided impetus to Friday’s rally because investors are now pushing back ANY move by the Fed to Q1 of 2016. The expected move in rates from 2015 to 2016 has markets once again in a position to ride the liquidity wave. I don’t expect this liquidity wave to reflect much in the way of additional marginal utility in terms of market performance. As with so many other trigger events, markets have become both reliant but also less impacted by
From a purely technical perspective, Friday’s action confirms a new uptrend for U.S. equities. All three major posted solid gain and volume on both the NYSE (+9.59%)and NASDAQ (+3.91% expanded. The uptick in volume is significant in that it played a role in the shift in market outlook but again, the expansion in volume was modest and hardly compelling.
The first test for our newly confirmed uptrend will be the degree to which the majors are able to scale and trade above hit key technical levels that have recently acted to be formidable barriers to any meaningful trade higher. As I suggested early last week, the 50 DMA and 200 DMA have proven to be key resistance levels for the indices. Will this time be different? We will see.
In recent interviews I have suggested that I expect another decisive trade lower in Q4 but I have also suggested that I expect the major indices to recoup much of the ground that was lost in Q3 by year end.
If Friday’s historic reversal has legs, we will know soon enough.