Technically Speaking For November 7

Includes: IJH, IWM, OEF, QQQ, SPY
by: Hale Stewart

Expect the Fed to raise rates at least one more time this year.

The NY and Atlanta Fed have lower 4Q GDP projections.

The markets had a solid rebound today.

The Fed started its two-day meeting today. They're meeting against a great economic backdrop: growth is strong, unemployment is low, and inflation is right above the Fed's 2% symmetrical level. According to the Fed's "dot plot," we can expect at least one more rate hike this year (rates are currently in the 2-2.25% range):

Let's place this into a yield curve perspective:

The blue line (left scale) is the 10-year CMT, which is currently trading around 3.2%. The red line (right scale) is the 10-year-FF spread. Despite the sell-off in the 10-year earlier this year, the 10-year-FF spread has remained right around 100 basis points.

What was worse -- the Great Depression or the Great Recession?

The Great Depression was far deeper than the Great Recession, losing an extra year’s output before recovery. But now we are haunted by our Great Recession in a sense that our predecessors were not haunted by the Great Depression. Looking forward, it appears that we will be haunted for who knows how long. No unbiased observer projects anything other than slow growth, much slower than the years during and after World War II. Nobody is forecasting that the haunting will cease — that the shadow left from the Great Recession will lift.

Read the whole thing. Agree or disagree, it's worth your time.

The economy is currently running on a sugar high of tax cuts and increased fiscal spending. Will that last? Maybe not. The Atlanta Fed is projecting a 2.9% growth rate:

Source: New York Fed

This slowdown shouldn't be surprising. The tax cuts probably had their maximum impact in 2Q18, primarily in the quarterly corporate results. We've seen a nice ramp-up in defense spending which should continue for a bit longer, but nothing lasts forever.

Let's turn to today's performance table:

A solid day. But this table is repeating the same pattern we saw a few days ago: the indexes with larger issues are outperforming the smaller indexes. The QQQ, OEF, and SPY did better than the IWM and IJH. This isn't fatal by any stretch of the imagination. But it does indicate there is a certain "risk off" appetite in the markets right now.

Let's take a look at a few charts to get an idea of the overall market action:

The 30-minute charts are very encouraging for the bulls. SPY Prices broke through resistance at the end of October and then bounced below the 200-minute EMA for about a week. They broke through yesterday and continued their advance today. This morning, prices gapped higher at the open and continued to rally throughout the day -- a very healthy development.

Let's take a look at today's price action:

This is a classic bull chart: prices start in the southwest corner and then rally into the NE. Along the way, they consolidate gains but continue to print higher lows and higher highs.

Let's return to the 30-minute charts be looking at the IWM 30-minute chart:

Prices consolidated losses at the end of October. They started to rally at the end of last month, moving about the 200-minute EMA at the beginning of November. Prices are now moving higher in a modestly parabolic pattern.

As I've previously written, I was most concerned about the longer-term market prospects based on the weaker IWM chart. That's less the case now:

What concerned me was the IWM was trading in the lower part of its 52-week trading range, barely hanging on. Today's move goes a long way to removing that concern.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.