The 1-Minute Market Report - October 5, 2018

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Includes: DDM, DIA, DOG, DXD, EEH, EPS, EQL, FEX, FWDD, HUSV, IVV, IWL, IWM, JHML, JKD, OTPIX, PSQ, QID, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RWM, RYARX, RYRSX, SCHX, SDOW, SDS, SFLA, SH, SMLL, SPDN, SPLX, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TNA, TQQQ, TWM, TZA, UDOW, UDPIX, UPRO, URTY, UWM, VFINX, VOO, VTWO, VV
by: Erik Conley

What happened last week. What we're watching for next week.

The Not-for-Nothing-Burger Market

Normally after a week like we just had, I would confidently reassure readers that it (the market decline) was a nothing-burger. This is my message today, except for one little twist. The spike in bond yields has spooked enough of the intrepid dip-buyers to render them, at least temporarily, powerless against the rally-sellers. Details to follow.

How bad was this past week in the market?

In the Grand Scheme, not very bad. In fact, it wasn't even worse than average for a down week. The average down week produces a decline of 1.8% versus the 1.0% we got this week. In other words, a nothing-burger.

Chart 1. S&P periodic returns

There were some notable changes in the periodic return numbers. The 1-month return went negative. The 3-month return was cut in half. And the 12-month return dropped all the way from 16.1% to 13.1%. This is what you would expect to find in a not-for-nothing-burger week.

This Week

Last Week

Let's look at the key markers for the market. For those who are new to this weekly report, I track the distance above or below some of the key levels that technicians and chartists obsess over. It has relevance because chart watchers have big followings and what they say about the direction of the market has impact.

The most salient point from this comparison is the fact that the market managed to stay above the first line of defense, which is the support at 2,871. That's a positive. The rest of the numbers slipped, but not by very much. So I'm calling this set of charts another argument for the nothing-burger case.

Chart 2. Distance from Key Markers

This Week

Last Week

Chart 3 - Chart of the week

Some of you might recognize that I have this chart in the Market Dashboard, but I'm singling it out as the chart of the week because of the rapid decline in this measure of short-term momentum.

In just two weeks, this indicator has gone from a bullish reading of 8 up-days out of 10, to 3 up-days out of 10. It's not the decline that matters here, it's the speed of the decline. This is part of the not-for-nothing-burger argument.

Chart 4. The Market Dashboard

We already covered the up-days out of 10, so that's done. Look at the drawdown chart in the upper left of the dashboard. The reading itself doesn't mean much, but it does get my attention.

Vix and Bollinger Bands are still behaving like good little soldiers. But the year-over-year change in the S&P 500 is nose down. How low will it go? I have no idea. Mark Hulbert was out today with a call for an 8-13% correction. I don't do that kind of forecasting. I only care about one thing: what is the probability that a bear market will arrive sometime in the next 12 months. I have a model for that, and subscribers to my monthly newsletter can track it along with other relevant indicators.

Final Thoughts

This week I'm watching the bond market. Especially the 10-year Treasury bond, which has had a notable spike in rate, with a corresponding drop in price. I could be wrong, of course, but I think this could be the thing that is causing investors to suddenly stop buying the dips. Only time will tell.

You decide: Was this past week a nothing-burger, or a not-for-nothing burger? I think it's too early to tell, but if we have another bad week beginning on Monday, I may have to find a new catch phrase to describe what's going on.