Trade Woes Weigh on Equities

• NASDAQ Composite -0.29% Dow -0.11% S&P 500 -0.34% Russell 2000 -0.43%
• NASDAQ Advancers: 866 Decliners: 1460
• Today’s Volume (vs. Friday) -18.50%
• Crude -0.24%, Gold +0.03%

Market Movers

• The economic calendar is bare today.
• Open Text Corp. (OTEX) has announced a deal to acquire Carbonite (CARB) for approximately $800 million in cash
• KKR & Co. made a formal approach to buy Dow component Walgreen Boots Alliance (WBA) 

Charlie’s Commentary

Trade and earnings dominated the narrative last week powering all three indexes to close in record territory with the S&P 500 capping a five-week streak of gains for the first time since February. The S&P 500 gained 0.25% to 3,093.08 while the Dow climbed 0.02% to 27,681.24 and Nasdaq advanced 0.5% to 8,475.31. Biotech, Consumer Discretionary, Health Care, Media and Technology were among the strongest groups. Energy and Transports were some areas of weakness. For the week, the S&P 500 gained 0.9% while Nasdaq rose 1.1%, extending its weekly winning streak to six. The Dow posted a three-week winning streak climbing 1.2%. Enthusiasm about the ability of the U.S. economy to keep chugging along, despite its record expansion, also has filtered over to the Russell 2000 index, the benchmark for smaller stocks, where a bullish “golden cross” price pattern is starting to take shape (50 day moving average moving up and over the 200 day moving average) and may signal a firmer breakout is on the horizon. The corporate earnings drum continued to beat with results generally beating expectations. Of the 452 S&P 500 companies that have reported through Friday, 74% have beaten estimates, according to FactSet.

Happy Veteran’s Day everyone and a special thank you to all that serve this country so bravely!! Today promises to be relatively quiet in the markets as while equities are open for business the bond market and banks are closed with many looking for an excuse for a three day weekend. The week is off to a measured start as cautious comments regarding the U.S.-China trade agreement have put what traders are at work in a risk averse mood. President Trump late Friday and over the weekend stated that America hasn’t yet reached an agreement with China and emphasized that he would not eliminate all tariffs. Evidence of the continued tensions between the two countries continues to have an effect on economic measures. Data over the weekend showed Chinese Factory Gate prices dropping for a fourth month. 

Separately, geopolitical unrest reared its ugly head again as turmoil escalated in Hong Kong. Local police opened fire on protesters trying to block roads and subway lines wounding several in the crowd. Hong Kong is in the sixth month of protests that began over a proposed extradition law and have expanded to include demands for greater democracy and police accountability. There is very little in the way of economic or company news today affecting the markets. Overseas, however, Alibaba is having their “Singles Day” today. Looked upon as the Chinese “Black Friday” and now a pre-cursor to the holiday shopping season, early results appear to be promising as in the fist hour alone they generated $13 billion in sales which is a 32% increase over last year’s results. As of this writing about two  thirds of the way through the 24 hour marathon, sales have totaled 267 billion yuan or $38 billion exceeding last year’s record haul. It looks like the consumer is alive and well and continues to underpin the economy in the Far East. Let’s see if that carries through to domestic sales later this month. 

There is nothing on the today. On the M&A front, KKR & Co has formally approached Walgreens Boots Alliance (WBA) regarding a deal to take them private in what could be the largest LBO deal ever. Also headlining is Carbonite (CARB) entering into a definitive agreement to be acquired by OpenText (OTEX) for $23 a share in cash, a 78% premium to Carbonite’s closing price on 9/5 (the last day of trading before media published a report about a potential sale).

In the commodity pits, oil is falling after President Trump appeared to downplay the reduction of any existing tariffs. The 16-month trade war between the world’s two biggest economies has slowed economic growth around the world and prompted analysts to lower forecasts for oil demand, raising concerns that a supply glut could develop in 2020. As one would expect in this constant push / pull between oil and gold, the shiny metal is trading slightly up today as renewed uncertainty over the US / China trade deal and escalating violence in Hong Kong have crated a risk off atmosphere that has enhanced the attractiveness of safe haven instruments.

Sector strength today is limited with Real Estate (+0.14%) the only positive sector. It is followed by Technology (-0.11%) and Financials (-0.15%). Lagging the market are Utilities (-0.62%), Energy (-0.59%) and Industrials (-0.48%).

Sector Recap

Brian’s Technical Take

Equities are modestly lower across the board and the bond market is closed for Veterans Day so no read on rates.  As I say this day each year in regards to the bond traders, “who’s got it better than those guys?”  

The defensive REITs sector is +0.2% given the light risk-off move in equities, however a little surprisingly to me the utilities sector is in the red (-0.6%) for what now makes six of the last seven sessions. Utilities is the worst performing sector in Q4 with a decline of 5.2% QTD. The YTD/all-time high was made in late September and at that time its daily RSI reached an “overbought” 72 level indicating at the very least a “minor” pullback was in the cards.  

The pendulum has now swung the other way and the daily RSI now stands at a near “oversold” 32 reading. This alerts us to look for signs of a “bullish reversal.” Sure enough price is now testing a cluster of technical support representing (1) prior highs throughout June and July (“prior resistance, now support”), and (2) the rising six-month trend line originating from the May lows. Today’s intraday low, $61.35, pierced 3c below the June high before a modest rebound.  

It is certainly too soon to say a “bullish reversal” is at hand. This week’s close could give us more confidence.

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Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen-based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen-based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq, Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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