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The Monster Look At The Week Ahead In Stocks For October 8
MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN SHARES OF AAPL, GOOGL, AND NFLX
Treasury yields will undoubtedly be the most important indicator to watch this week to decide whether stocks will rise or fall. But Monday will not be the day to do that because the bond market is closed. It may give equities a chance to rebound a bit and find their footing. There will also be plenty of inflation data out this week with the PPI on Wednesday and CPI on Thursday. Those two reading may be of particular importance for the direction of yields for the balance of the month.
The 10-year hit a critical level of resistance around 3.25%, and if my chart is correct, we should see yields fall back to about 2.95% over the course of the next few weeks.
The dollar will be the second most important metric to watch to gain a sense of confirmation in bond yields. Rising yields should be bullish for the dollar, and that should result in the dollar strengthening further against currencies such as the euro and yen. The dollar index has had a healthy 2018, but has stalled out in recent weeks and suggests at the moment that the current rise in rates is likely not to last. The technical chart indicates at the moment that dollar, at least over the short-term, will continue to fall perhaps slightly to around 94.
The next chart below shows just how tight the yield curve has become in 2018 versus previous years. It is one of the primary reason the banks have performed so poorly in 2018. (Read more: Banks and Industrial Stocks Continue To Break Down As Outlook Worsens .)
The next chart shows precisely why the dollar has strengthened so much this year as well. We can see the outperformance of US yields versus other major global currencies and as long as this trend continues the dollar should continue to strengthen.
It is also worth noting that the spread between the German and US 10 year yields is at the widest point since the last 1980’s when rates and inflation were at higher levels.
When we consider stocks in the market that are critical to its health we must look directly at the most significant components for these are the generals. We can assume that the forecast for the current quarters and balances of the year are relatively unchanged. That only things that may have changed are the markets willingness to give further multiple expansion or perhaps less multiple expansion.
Apple stock as successfully tested support around the $217 price many times and we can see there is a solid uptrend in place for the stock which the shares bounced sharply off during the lows of Friday.
Amazon is another stock that is of critical importance to the market due to its monster market cap. This chart is more troubled than that of Apple. If there is one glimmer of hope, it is that the stock found a bounce around its earlier lows last week around $1860. If the stock can manage to stay above these levels, then it should be viewed as positive. But if the stock is unable to stay above $1860, it would seem there is an excellent chance more declines are ahead.
Alphabet is another critical stock to watch that must stay above $1154.
Another group that must perform well are the risk on groups such as the biotech and semiconductors stock which we highlighted in yesterday commentary. (Read more here: 7 Stocks Must Watch Stocks To Start The Week Of October 8. ) These are two groups that may help to gauge the risk appetite for the market given their high levels of volatility. Should these two groups continue to drift lower, it would suggest that the risk appetite is continuing to diminish.
Netflix is another stock to watch because it has been among the leaders this year. The company is due to report results on October 16, and there should be plenty of analysts notes coming out this week ahead of those results. If bullish, they should give a firm bid in the stock.
The term Netflix subscription in Google trends continues to stay strong although lower than its peak in July. Last quarter I misinterpreted Google trends and let my emotions get the better of me thinking the big surge at the start of July would be reflected in the second quarter results. Second quarter results were disappointing. But there was a tremendous surge in the term Netflix subscription in early July,
Meanwhile India appears to be the hottest of the markets.
I realize I went a bit off topic here but a strong move higher in Netflix should surely be a positive for the broader market as well.
That is going to be all I have the time for today. But good luck this week.
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