The Heat is On!

The heat is on!  It was another tough day for… everything except gold and bonds.  And that sentence should paint the big picture of fear selling.  Gold has always historically been the ultimate safe haven when risk assets are under siege.  More recently, gold has lost its luster as a safety trade with the emergence of other hedging tools such as inverse ETNs (exchange traded notes), retail options, and a retail focused VIX ETN (VIXX).  Many investors still believe in keeping some of the metal in their portfolios to protect from a black swan event.  I like to say that gold is one of those things that you hate having in your portfolio but for 1 day a year… and that day was yesterday.  When gold surges on a sharp selloff day, it is a sure sign that at least some investors are panicking (see chart 12 in my attached daily chartbook).  Yesterday the S&P 500 closed off of its session lows right on a Fibonacci support line at 2730 but below its 200 day simple moving average.  2700 will be the next level of support for the index which is now in risk off mode.  The Dow Jones Industrials had a similar journey closing just below the 200 SMA, at one point even trading below 25000, which will be support for the index (see chart 6 in my attached daily chartbook).  The Dow Jones Industrial Average is in risk off mode.  The tech heavy NASDAQ closed below 7000 and its 200 SMA putting it too in risk off and correction territory.  Technology, which was hit hard in Wednesday’s session faired the best of the worst yesterday.  The Russell 2000 continued its free fall in yesterday’s session closing on its low of the day.   The R2K will get some support at 1527 and 1508 with momentum at a low for the year (see chart 7 in my attached daily chartbook).  The Russell remains risk off and is also in correction territory.  As I have said in past notes, the Russell 2000 is often a canary in the coal mine for all equities, which will not likely soar to new heights until the small caps recover.  The VIX index closed off of its session highs indicating that fear had somewhat subsided by the end of the day.  However, the VIX remains above that magic number 18 which indicates that volatility is not yet over.  Crude oil and energy stocks had a tough session yesterday as well.  Crude was down on an OPEC report that expected next year’s demand to slow in response to global economic conditions and trade concerns.  WTI crude closed below its 71.5 Fibonacci line and has very little support until its 67.27 Fibonacci line. Bond yields eased off in yesterday’s trade in response to the selling in equities.  Ten year yields traded as low as 3.12% later in the session.  Ten year yields will start todays session up slightly at 3.16%.

Today we will get the University of Michigan Sentiment index, which is expected to come in at 100.5 after last month’s 100.1.  The index measures consumer sentiment by gauging willingness to spend discretionary income.  We will also get the Import Price Index, which is predicted to have grown at +0.2% after falling -0.6% last month.  Today’s most watched numbers however will be the earnings releases from JP Morgan Chase, PNC Financial, Citigroup, and Wells Fargo.  These may be the silver lining in the recent rate hike drama as banks typically perform better in higher rate environments.  All of these releases will come prior to the markets open and could set the stage for today’s trade.  Overnight equity futures traded up indicating the possibility of a stronger open. The big question is what to do in response to the recent selloff.  Long term investors should re-examine their objectives and timelines and make adjustments, if necessary.  If portfolios are properly diversified and managed there is no cause for panic.  Shorter term investors should ensure that their portfolios are diversified and reflect a lower risk profile.  The best way to start is to call your adviser.

daily chartbook 2018-10-12