Commenting on today’s trading focusing on a partial deal with China Gorilla Trades strategist Ken Berman said:
While the major stock indices are back where they started the week following today’s rally, several other assets are showing positive divergences. Treasury yields surged higher today, thanks to the President’s upbeat tweets regarding the trade talks, and while equities have been lagging behind, a trade breakthrough would likely trigger an epic rally in stocks too.
Dan Loeb's Third Point returned 11% in its flagship Offshore Fund and 13.2% in its Ultra Fund for the first quarter. For April, the Offshore Fund was up 1.7%, while the Ultra Fund gained 2.3%. The S&P 500 was up 6.2% for the first quarter, while the MSCI World Index gained 5%. Q1 2021 hedge Read More
Stocks rally amid hopes of partial deal
The major indices finished higher for the second day in a row, thanks to the positive trade and Brexit related developments, even though we still don’t have any deals at our hands. The Dow was up 151, or 0.6 %, to 26,497, the Nasdaq gained 47, or 0.6%, to 7,951, while the S&P 500 rose by 19, or 0.6%, to 2,938. Advancing issues outnumbered decliners by a 2-to-1 ratio on the NYSE, where volume was slightly below average.
Although the key sectors all gained ground today, we saw strong divergences even between the risk-on sectors. The very active materials sector was boosted by the bounce the price of oil, industrials were helped by the returning trade optimism, while financials also enjoyed the rally in Treasury yields. Consumer goods were hit by the lower-than-expected Consumer Price Index (CPI), while the defensive utilities and healthcare stocks were relatively weak too, and tech stocks settled down slightly after leading the way higher yesterday.
US China talks
Stocks surged higher today when President Trump announced that he is meeting Chinese Vice Premier and lead negotiator Liu tomorrow. In the same tweet, he stated that the Chinese side wants to strike a deal, triggering a rally in the shares of the most-affected companies. Even a partial deal could be a huge boost for stocks, especially following this week’s scary headlines. The Chinese delegation is scheduled to leave Washington tomorrow, so another day of volatile swings might be ahead.
The Brexit negotiations seemed to be breaking down this week, and European assets have been struggling due to the fears of a hard Brexit. Today, the Prime Ministers of the U.K. and Ireland released a positive statement that could turn the tide just in time before the October 31 deadline. The Great British Pound jumped by the most in mover six months on the news, while the key European benchmarks hit one-week highs. The question of the border between the two countries has been the biggest obstacle of the ongoing negotiations between the U.K. and the European Union (EU), and an agreement could pave the way to a final deal.
Regardless of partial deal or not, economy is in focus
While the week’s most important economic numbers are behind us, there will still be interesting releases that could move markets. The amount of new loans in China will likely have the biggest impact on equity futures overnight, as the measure has been a reliable indicator of economic activity in the country. The Michigan consumer sentiment number will come out just after the opening bell, and as since the CB consumer sentiment number declined significantly in September, bulls will be looking for a positive surprise.
Technical Corner: As the major indices are virtually unchanged this week despite the volatile days on Wall Street, the technical picture remains mixed, as bulls continue to fight for control in the short-term time-frame. The benchmarks are all well above their rising 200-day moving averages of 7,750 for the Nasdaq, 2,851 for the S&P 500, and 25,943 for the Dow. Despite the two bullish sessions in a row, the indices are still stuck below their 50-day moving averages of 2,938 for the S&P 500, 7,980 for the Nasdaq, and 26,444 for the Dow.
Although small-caps continue to be worryingly weak, mega-cap stocks are still enjoying inflows, and some of the tech giants look ready to lead the charge higher again. Apple (AAPL) has been one of the strongest among the previous leaders of the bull market, and today, the stock hit its highest level in a year, edging closer to its prior all-time high. The stock is clearly above both its 50- and 200-day moving average, and since the trade tariffs hurt Apple in recent months, even a partial deal could be enough to propel the stock to a new record. Stay tuned!