Craig Johnson’s

Market Commentary

Monday, October 20, 2014

Financial Markets Recap for Last Week:

  • The stock market dropped sharply last week before finding an area where the selling exhausted itself on Thursday. That was followed by a sharp move off the lows and a rally on Friday.
  • An inspiring performance coming from the beaten down Russell 2000 Index, which is representative of the small capitalization sector provided investors and traders with returns that were nearly 3% last week. This was especially remarkable as it was occurring in the face of a huge decline for the general market as measured by other indices.
  • The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite from their September 19 high to last week’s October 15 low dropped 8.62%, 9.84% and 10.71%, respectively. The Russell 2000 declined 10.60% during the same time frame. Unlike the other indices mentioned, the Russell 2000 recorded its high on July 1 and its low on October 15, declining 14.26% during that period.
  • The Russell 2000 might have benefitted from options expiration last week as institutions unwound short positions that were being used to hedge long positions. This could explain the massive outperformance by the S&P 500 over the Russell 2000 on Friday as the unwinding ended and possibly new short hedge positions were enacted.
  • The Dow Jones Industrial Average (DJIA) and the Russell 2000 remain in negative territory year–to–date. The DJIA is down about 1.20%, while the Russell 2000 is down nearly 7%. The S&P 500 and the Nasdaq Composite remain higher by roughly 2.00% in 2014.
  • The Dow Jones Industrial Average, S&P 500, Russell 2000 and the Nasdaq Composite are all trading below their respective 50 day and 200 day moving averages.
  • The volatility impacting the market over the past few weeks continued last week. The Dow Jones Industrial Average experienced three trading days last week with closes reflecting triple digit moves.
  • Oil prices dropped below $81 a barrel on an intraday basis. In the process oil prices closed on Monday and Tuesday below $82 before bouncing higher by the end of the week and closing near $83 a barrel.
  • Gold rallied last week moving up to the first level of resistance near $1240 an ounce.  

Financial Markets Health and Outlook:

  • The stock market remains bullish. One interesting note is that the Russell 2000 Index could be nearing the end of a multi-month correction, which could lead to a spirited rally in the coming weeks. (Repeated from last week). It was a tough week for the market, but the Russell 2000 showing was encouraging.
  • October is typically thought of as a reversal month. It is possible that the decline that started during September and has continued through the first couple of weeks of October might have recorded a low. The next couple of weeks will give a good indication of whether that is true. A retest or two of the low, some backing and filling from any advances and possible frustration that a new vertical up move isn’t occurring immediately can all be expected.
  • The third quarter earnings season will be picking up noticeably this week. This week and next week the stock market will be inundated with company earnings reports. The focus by analysts beyond the third quarter reporting will be the guidance that the companies give for the remainder of the year.
  • The yield on the ten year U.S. Treasury note broke through significant support at 2.10% on Wednesday, but moved back above support on Thursday and Friday. It closed the week at 2.199%.
  • Wheat, corn and soybean prices are trying to form bases. All are deeply oversold and have rallied for three consecutive weeks. They are at near term resistance levels. 

Sources: bankrate.com, bloomberg.com, briefing.com, Dow Jones News, Financial Times, finviz.com, Investor's Business Daily, marketwatch.com, seekingalpha.com, Thomson Reuters/First Call, U.S. Dept of Treasury, yahoo.com and individual company web sites and press releases.

Leonetti & Associates, LLC views or opinions are as of a certain date and subject to change without notice.  The material contained herein is for informational purposes only and obtained from sources we consider reliable. We make no guarantee as to its accuracy or completeness.  References to specific securities and industries/sectors should not be considered recommendations to buy or sell any security or advisory service.  Past performance is not a guarantee of future results.

Index