Is the market too sensitive to corporate performance?

We’re seeing a pullback across major U.S. indices as a round of corporate earnings reports proved disappointing to investors. Although overall bullish sentiments remain, it is reasonable to view current equity valuations as a bit overstretched. This dynamic seems to be put into focus as economic data is not weakening and there is no impending news from the Fed regarding monetary policy. The biggest losses today were seen in Chipotle (CMG) and AMD (AMD). Their earnings performance was weaker than expected, and the two shares are down 15% and 12% at the time of publication, respectively. The bigger picture remains bullish for the near future, although fluctuations are likely to be more pronounced when corporate data disappoints.

Durable-goods orders and new-home sales data were both strong for the month of September, adding optimism in the event of a sharper pullback in equities. Durable-goods orders jumped 2.2% last month, and new-home sales were up nearly 19% when comparing September to August data.

At the time of publication, the DJIA is down 0.56%, or 130.12 points, at 23,313. The S&P 500 is trading at 2,551- down 0.72% from the open. The Nasdaq-100 is down 0.89% at 6,540.

Using the ^GSPC symbol to analyze the S&P 500, our 10-day prediction window shows  mixed signals, indicating potential short-term skittish trading. Today’s positive vector figure of +0.02% moves to -0.24% tomorrow before fluctuating for the following three trading sessions.  Today’s predicted support and resistance is 2,558.74 (± 2.33) and 2,575.78 (± 2.34), respectively. The predicted close today is 2,575.98. 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 24, our Live Trading Room service- which is exclusive to our Premium membership plan- closed a successful long option trade for PowerShares QQQ Trust ETF (QQQ).

Trade Breakdown

The position was opened on October 13, and we entered the position at $1.35 and exited on October 24 at $1.68. The Net Gain was $0.33 (22.58%).  The Stop Price was $0.95, with a Risk of $0.40.  This resulted in a 82.50% Net Gain for the trade, including Risk.

Must-buy Stock for Thursday

Our must-buy stock for Thursday is ON Semiconductor Corp. (ON). We’re solid bullish momentum in our Stock Forecast Toolbox’s 10-day forecast. This stock is assigned a Model Grade of A, indicating it ranks in the top 10th percentile for accuracy relative to our entire data universe. Our 10-day prediction model shows vector figures climbing above +2.00% within the next four trading sessions. Our benchmark for vector figures is +1.00%.

The stock is trading at $20.28 at the time of publication, down 0.42% from the open with a +1.08% vector figure.

Thursday’s prediction shows an open price of $20.05, a low of $19.88 and a high of $20.63.

The predicted close for Thursday is $20.27. Vector figures show -0.33% for tomorrow, which shows an optimal entry opportunity as the vectors reverse to strong positive territory in the following trading sessions.  

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

Gasoline futures are being driven up on the heels of recent data showing four consistent weekly drops in U.S. crude supplies. Today’s data from the Energy Information Information Administration, however, showed a supply rise of 900,000 barrels for the week ending October 20. Crude prices will likely find support with optimistic outlooks from major OPEC member-countries. We saw positive Tuesday commentary from both Saudi Arabia and Russia around the OPEC production cut deal, inferring a likely extension in November. West Texas Intermediate for November delivery is priced at $52.16 per barrel at the time of publication, down 0.91% from the open.  

Looking at USO, a crude oil tracker, our 10-day prediction model shows mixed signals with a late uptrend. The fund is trading at $10.45 at the time of publication, which is down 0.85% from the open. Today’s prediction sees support at $10.38 (± 0.04) and resistance at $10.54 (± 0.04). The predicted close for today is $10.52. Vector figures show +0.04% today, moving to -0.58% in three trading sessions before a positive correction. 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 down 0.03% at $1,278.70 a troy ounce at the time of publication. Market participants are anticipating the next pick to lead the Federal Reserve, so this injects an air of cautiousness around precious metal investments. Although the recent round of corporate earnings reports have been mixed, the U.S. dollar is still elevated and treasury yields remain relatively high.

Using SPDR GOLD TRUST (GLD) as a tracker in our Stock Forecast Tool, the 10-day prediction window shows consistent negative signals. The gold proxy is trading at $121.20, down 0.11% at the time of publication. Today’s predicted low is $120.24 (± 0.31) and the predicted high is $121.68 (± 0.32). The predicted close today is $120.47. 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

With the new choice of Federal Reserve leadership approaching, and President Trump indicating he is close a decision, government paper is weakening. Yields are pushing higher because of this and gaining support from positive September economic data released today. Market participants are also looking to a European Central Bank meeting this Thursday, which is expected to produce a 2018 plan to draw down the ECB’s asset-buying program. The yield on the 10-year Treasury note is up 1.13% at 2.44% 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 consistent negative signals in our 10-day prediction window. Today’s vector of -0.02% moves to -0.76% within three trading sessions. The ETF is priced at $122.73 at the time of publication- down 0.57% from the open. The predicted close today is $123.45 with a low and high of $123.06 (± 0.22) and $123.61 (± 0.23), 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 up 8.06% to 12.06 at the time of publication, and our 10-day prediction window shows overall positive signals.  The predicted close today is 12.12 with a positive vector of +0.78%. Today’s predicted lows and highs are 10.86 (± 0.18) and 12.55 (± 0.20), respectively. October, particularly the latter half, tends to see higher volatility and we’re in the midsts of a new Fed leader choice and earnings season. 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.