Are Equity Bears In Early Hibernation?
Today’s Spotlight Market
The U.S. Housing market continues to shine as U.S. housing starts rose to their highest levels in nearly 8 years in September. The Commerce Department reported that new home construction rose by 6.5% to a seasonally adjusted rate of 1.21 million units. Single-family homes construction rose by 0.3% while multi-family construction rose by 17%. While we should note that monthly data for housing can be quite volatile, we have seen housing starts remain above a 1 million unit pace since April of this year.
Fundamentals
All the doom and gloom seen in the equity markets in August and September are becoming but a memory for short-term traders as the E-mini S&P 500 futures are trading near 2 month highs. It appears that market participants are starting to believe that the Federal Reserve will not make a move towards raising interest rates until late 1st quarter 2016, with Fed Fund futures prices currently showing a 30% probability of a rate hike at the December Federal Open Market Committee meeting.
With the Fed apparently on hold for the time being, analysts are turning their focus towards corporate profits as we enter the beginning of the 3rd quarter earnings season. Analysts are already factoring lackluster earnings this quarter with the average estimate calling for a 4.5% decrease in earnings growth when compared to the 3rd quarter of last year. While we are still in the early stages of the earnings season we have seen the vast majority of companies that have already reported their earnings beat the street estimates for earnings per share. However, sales growth has trailed the 5-year average so far this quarter and this may be a more important factor to watch if it shows a ?truer? picture for how corporations are faring as opposed to earnings per share, which can be affected by spending cuts and share buybacks.
While some traders are attributing the recent equity market rally to ?short covering?, the analysis appears to contradict this as short interest has not materially changed since August when the sell-off occurred. So in reality, current short-interest levels could end up being a bullish factor for equities should weak equity bears start to cover their short positions in the coming weeks and could ultimately be the catalyst for the so called ?Santa Claus? rally as we move into December.
Technical Notes? – View Today’s Chart
Looking at the weekly continuation chart for the E-mini S&P 500 futures we notice prices forming a base nestled between the up-trend line drawn from the major low made back in 2009 and the uptrend line drawn from the intermediate low made back in October 2011. This week?s trading activity is setting-up a test of the 20-week moving average which is hovering near the 2030.00 price level. The 14-week RSI has moved up from recent low readings near 30 to a more neutral 49.62. The July 2015 low of 2034.25 is seen as the next chart resistance level with support found at last week?s low of 1982.50.
—————————————————————————————————–
This article is provided for informational purposes only. No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice. The content provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness. optionsXpress makes every effort to provide timely information to its recipients but cannot guarantee specific delivery times due to factors beyond our control. Derivatives involve substantial risk and are not appropriate for all investors. Please read the “Disclosure Statement for Futures and Options” prior to investing in futures or options. For investments using a straddle or strangle options strategy the potential loss is unlimited. Multi-leg option strategies are subject to multiple commissions. Profits may be eroded by the commission expended to open and close the positions and other risks apply.