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State of the Markets: We're watching the charts, Big Blue, and the Fed

On this 27th anniversary of “Black Monday,” investors will likely see the recent spate of market volatility continue. Barring an unforseen event, stocks are unlikely to drop 508 points as they did 27 years ago. However, the early action has once again been all over the map.

In Japan, stocks cheered the news that the government was considering pushing back the planned taxes. In China, the talk was about the PBoC injecting liquidity into the country’s top banks and discussions of further stimulus.

In the U.S., stock futures had been up substantially on Sunday evening. However, Big Blue’s (NYSE: IBM) big miss put a damper on the mood and sent futures lower for a spell. IBM announced earnings early this morning and came in with a fairly downbeat report. Diluted EPS came in a full 8% below the year ago quarter. In addition, CEO Ginni Rometty said, “We are disappointed in our performance. We saw a marked slowdown in September in client buying behavior, and our results also point to the unprecedented pace of change in our industry.” The news pushed IBM shares as well as S&P futures lower.

There is also Fed-speak in the news this morning as Dallas Fed President Richard Fisher said that the economy is in fine shape and that, in his opinion, there is no reason not to end QE at this point. This follows a WSJ article by Fed-watcher Jon Hilsenrath who opined that the Fed will ignore recent market volatility and stay the cTourse with regard to ending QE at this month’s meeting.

Stock futures currently point to a mixed open at this time. The Dow is lower thanks the decline seen in IBM, the S&P is down slightly, while the NASDAQ is higher.

Current Market Environment

The key question at this stage is if the current correction will follow the trend seen over the last two years and produce “V” bottom. Since 2014, any and all pullbacks have been one-way affairs that were quickly reversed. And once the rebound began, it hasn’t taken the bulls long to push the S&P back to new-high territory. However, the current corrective phase appears to be a bit different and as such, investors may have to prepare for either a retest of the lows or another leg down if companies like IBM continue to disappoint to any meaningful degree. On the indicator front, our environment models remain neutral on balance and suggest that some caution continues to be warranted.

Looking At The Charts

The bulls will argue that the intraday action seen over the last three sessions is encouraging. In short, the bears looked like they had the market on the run and things were looking pretty bleak. However, once Fed officials started “talking the talk,” the decline, which was beginning to take on a “waterfall” feel, quickly ended. Thus, the typical reflex bounce began late in the week and the key question for today is whether or not the bulls can retain possession of the ball here. There is rather important resistance just overhead as well as the seemingly all-important 200-day moving average at 1905. So, the action over the next day or so is likely to be quite telling as to which team controls the near-term direction.

S&P 500 – Daily

See more at: StateoftheMarkets.com

David Moenning is Chief Investment Officer at Heritage Capital Management, a Chicago-based registered investment advisory firm. Mr. Moenning began his investment career in 1980 and formed Heritage Capital in 1989. Dave’s firm focuses on “active management” and focuses on managing market risk on a daily basis. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Mr. Moenning is the 2013-14 President of NAAIM (National Association of Active Investment Managers) an organization dedicated to active management strategies. Follow Dave on Twitter at @StateDave.

Dave Moenning

David Moenning is Chief Investment Officer at Heritage Capital Management, a Chicago-based registered investment advisory firm. Mr. Moenning began his investment career in 1980 and formed Heritage Capital in 1989. Dave’s firm focuses on “active management” and focuses on managing market risk on a daily basis. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Mr. Moenning is the 2013-14 President of NAAIM (National Association of Active Investment Managers) an organization dedicated to active management strategies. Follow Dave on Twitter at @StateDave.