Bold NAFTA demands and geopolitical tension points to potential market uncertainties

U.S. negotiators have recently outlined a set of strong proposals in ongoing proceedings with Mexico and Canada over North American Free Trade Agreement. These demands from the U.S. have been expected, along with President Trump’s threat to walk away from the deal altogether, so there are no real surprises with these developments. The fifth round of talks are set to occur in the first week of November in Mexico City, and market participants will be focusing solely on the leeway in which U.S. negotiators give in the demands. As of now, much of the hardline rhetoric can be considered politically performative for domestic audiences. There is, however, growing opposition from both the private sector and U.S. lawmakers, in addition to the expected Mexican and Canadian opposition. This can have a compounding negative effect on other agenda items and the administration’s ability to garner bipartisan support to pass them. Expect empty threats to cancel NAFTA from the President in the coming weeks, followed by a mum finalization of negotiations with a return to normalcy, albeit a prolonged process.

Additionally, the high likelihood of another North Korean missile launch along with an escalation of tension between the Iraqi military and the Kurdish minority have added degrees to a general atmosphere of geopolitical uncertainty. The Iraqi military has moved into the Kurdish-held city of Kirkuk- which contains oil assets. As a result, WTI and Brent prices have jumped today due to the escalation. Kurdish-held areas of Iraq produced about 10% of the country’s 2016 output.  

Although each individual domestic and international political event is not a crisis on its own, the sum of the parts creates a sense of uncertainty which will likely price into market activity this week. We’ll likely see a short spike in gold and crude prices, with the treasuries market and the U.S. dollar strength depending on Fed commentary and earnings results.

At the time of publication, the DJIA is up 0.18%, or 41.81 points, at 22,913.53. The S&P 500 is trading at 2,556.16- up 0.12% from the open. The Nasdaq-100 is up 0.25% at 6,622.56.

Using the ^GSPC symbol to analyze the S&P 500, our 10-day prediction window shows  initial positive signals followed by a negative downturn. Today’s positive vector figure of +0.06% reversed to -0.05% within three trading sessions.  Today’s predicted support and resistance is 2,553.17 (± 2.71) and 2,561.09 (± 2.71), respectively. The predicted close today is 2,557.13. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.  

Highlight of a Recent Winning Trade

On October 13, our ActiveTrader service- included in all of our membership plans- generated a Bearish trade recommendation for Kohl’s Corp. (KSS).

Trade Breakdown

Within the first hour of trading, KSS passed through the Entry 1 price range ($42.79, ± 0.30) and reached its Target of $42.36 before seeing a positive correction. The Stop Loss was set at $43.22.

Must-buy Stock for Tuesday

Baidu Inc. (BIDU) is our must-buy stock for Tuesday. The stock is building up very strong positive vectors in our Stock Forecast Toolbox’s 10-day forecast. Our 10-day prediction model shows vector figures climbing above +2.50% within the next three trading sessions. Our benchmark for vector figures is +1.00%.

The stock is trading at $266.80 at the time of publication, up 1.57% from the open with a +0.91% vector figure.

Tuesday’s prediction shows an open price of $267.78, a low of $262.80 and a high of $273.15.

The predicted close for Tuesday is $266.29. Vector figures show +2.19% for tomorrow, which continue to rise for the remainder of the forecast.  

Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.

Note: The Vector column calculates the change of the Forecasted Average Price for next trading session relatively to average of actual prices for last trading session. The column shows expected average price movement “Up or Down”, in percent. Trend traders should trade along predicted direction of the Vector. The higher the value of the Vector the higher its momentum.

Oil

The aforementioned military action and escalating tensions between Baghdad and the Kurdish Regional Government has pushed crude prices near a three-week high today. The Kurds have historically always fought for independence in Iraq and abroad, and last September saw a successful Kurdish independence referendum. This subsequently set off an escalating political tension with the Iraqi government. Iraq, an OPEC member-country, ranks second in its output amongst its peers. Kurdish-controlled areas of Iraq produce 10% of its output.  West Texas Intermediate for November delivery is priced at $51.72 per barrel at the time of publication, up 0.64% from the open.  

Looking at USO, a crude oil tracker, our 10-day prediction model shows a negative correction followed by proceeding positive signals. The fund is trading at $10.44 at the time of publication, which is up 0.68% from the open. Today’s prediction sees support at $10.29 (± 0.05) and resistance at $10.41 (± 0.05). The predicted close for today is $10.38. Vector figures show +0.03% today, moving to -0.97% in three trading sessions before showing a positive upturn.  Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.   

Gold

The price for December gold is up 0.15% at $1,306.10 a troy ounce at the time of publication. The perceived safe-haven asset is hovering above the psychological $1,300 level as investors price in uncertainty around the timeline to a Fed interest rate hike. Last week saw lower-than-expected inflation rates, although Fed Chairwoman Janet Yellen provided reassuring commentary over the weekend to counteract investor sentiments. Yellen continues to show interest in on removing credit market accommodation in upcoming FOMC meetings.  

Using SPDR GOLD TRUST (GLD) as a tracker in our Stock Forecast Tool, the 10-day prediction window shows rising positive signals. The gold proxy is trading at $123.81, down 0.01% at the time of publication. Today’s predicted low is $123.82 (± 0.22) and the predicted high is $124.42 (± 0.22). The predicted close today is $124.31. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.   

Treasuries

Following lower-than-expected inflation rates last week, Fed Chairwoman Janet Yellen balanced market sentiments by affirming the move to a 2017 rate hike. It appears as though Fed thinking is willing to overlook dampened inflation rates- insisting it is only transitory. This claim is beginning to seem like a reach to market participants, because it has been repeated for some time without data to back it up. The yield on the 10-year Treasury note is up 0.51% at 2.30% at the time of publication. Bond prices tend to move inversely to yields.

Using the iShares 20+ Year Treasury Bond ETF (TLT) as a proxy for bond prices in our Stock Forecast Tool, we see overall positive signals in our 10-day prediction window. Today’s vector of -0.17% corrects to +0.15% within three trading sessions. The ETF is priced at $125.84 at the time of publication- down just 0.01% from the open. The predicted close today is $125.44 with a low and high of $124.47 (± 0.19) and $125.94 (± 0.19), respectively.  Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.

Volatility

The CBOE Volatility Index (VIX) is down 2.29% to 9.83 at the time of publication, and our 10-day prediction window shows consistent positive signals. Corporate earnings reports, geopolitical and domestic political tensions as well as uncertainty around an interest rate hike will likely contribute to heightened volatility in October.  The predicted close today is 9.73 with a positive vector of +0.33%. Today’s predicted lows and highs are 9.59 (± 0.16) and 10.18 (± 0.17), respectively. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.