Surging Dollar And Sinking Gold Price Weighing On Investors' Minds

New York (Nov 12)  U.S. equity market opened lower on lighter than average trading volumes as we observe Veterans Day. The equity markets are open while bond traders get the day off. Last week we saw the markets rally nicely post-midterm elections on higher trading volumes, only to give back some of those gains to end the week. Away from political intrigue, a number of items continue to weigh on investor's minds include a surging dollar and sinking gold. Oil is trading slightly higher after closing lower everyday for the past two weeks. A number of large-cap Tech and Consumer names report this week which could help shape the market direction in this last full week of trading before Thanksgiving.

Merger Monday continues with a number of private equity and venture capital deals. Veritas Capital and Elliot Management have entered into a definitive agreement to take athenahealth (ATHN) private for $135.00 a share, valuing the deal at nearly $5.7 billion. SAP SE (SAP) announced it will purchase Qualtrics for nearly $8 billion ahead of its expected IPO this week. This is SAP's second biggest acquisition (largest was Concur in 2014 for $8.3 billion) and the biggest-ever acquisition of a VC backed enterprise software company. YTD, global M&A has top $5 trillion of announced or proposed deals which is up 7.2% from this time last year. In North America, we have seen $2.5 trillion of deals already which is up 22.3% from this point last year while in contrast Europe has only seen $1.12trillion of announced or proposed deals which is down over 10.8% from this point last year.

Trading volumes continue to trend higher through the end of last week. The average daily trading volume on the consolidated tape since the beginning of October has averaged over 8.3 billion shares a day which is 18% higher than the year-to-date average of just over 7 billion shares a day. This is also 32% higher than the daily average for all of Q3'18. Along with higher volumes comes volatility. The CBOE Volatility Index (VIX) or fear index has traded above 25 a number of times during the last 6 weeks and currently sits with a 19 handle which is 25% higher than the yearly average. The correlation between the VIX and trading volumes is clear, with increased volatility, market volumes uptick.

Brian's Technical Take

Defensive sectors are outperforming today led by utilities, REIT's , and staples which are the only GICS in the green and not so surprisingly they are also the top performing sectors so far in Q4.  The S&P 500 is seeing its third consecutive day in the red after rallying 211 points, +8.1%, off the late October lows that peaked last Wednesday and Thursday at 2,815 where a cluster of technical resistance resided based on the 100-day sma, the prior mid-October high, and the 61.8% retracement of the entire October decline.  In Thursday's update we noted "In the very near term healthy consolidation from here could see a relatively minor pullback to support at yesterday's gap, 2,756 - 2,774, reinforced by the 200-day sma, now 2,763 (yellow line), which resides in the middle of the gap."

Last sale in cash SPX is 2,756 with an intra-day low of 2,751.  This is still a modest pullback relative to the recent gains and it would not surprise to see more downside.  The 2,706 - 2,710 range looks like one possibility as it represents the early-mid October low, as well as the 50% retracement of the recent 211 point gain.  This would put in place a textbook "head & shoulder" bottoming pattern which would only trigger on a breakout back above the recent 2,815 highs.  At the end of the day trying to pick THE bottom tick is guesswork and risks clouding our expectation for that seasonal Santa Claus rally.  Further out into early 2019 however, there are glaring concerns from peak earnings, dollar strength (new 52-week highs today), hawkish Fed, and China trade that should keep bulls and bears on their toes.

NASDAQ

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