SPX - Momentum Rolling?

So far, 183 of the S&P 500 companies have reported; those earnings have surprised to the upside, in aggregate by 6%. That’s a large surprise compared to historical averages.

29 October 2024

Below is a transcript from Monday's Morning Market Hit video above.

Welcome to Shortview Trading. This is your morning market hit for Monday, 28th October. What matters today and this week for markets? How should you be thinking about trading the S&P 500 or other US equity indices with a one- to two-week time horizon? What short-term indicators will give you the clearest steer on market direction, and how do you decide to go long or short? That is the purpose of this clip.

Firstly, we need to consider the context for this global equity market. How are markets behaving, and what's driving risk appetite in the near term? There are two key observations to make at the moment. The first is that global equities have been rolling over in recent weeks despite strong earnings reports, and you can see that from this table on your screen. So far, 183 of the S&P 500 companies have reported; as you can see from the top right, those earnings have surprised to the upside, in aggregate by 6%. That’s a large surprise compared to historical averages, where the earnings beat is typically closer to 3 or 4%. Yet, despite that, this is an equity market that’s lost momentum. Take a look at S&P 500 futures—they made a high in mid-October, but in recent weeks they’ve broadly been making lower lows and lower highs. So, the response to positive news flow has been disappointing, and the price action has been poor. A move lower in equities on good news is usually a sign of a market that is tired and has lost momentum. That’s the first observation.

The second is that US rates and bond yields have moved up sharply in recent weeks, putting a brake on the upward momentum in equities. You can see that on your screen now. Ten-year yields have pushed above their 200-day moving average over the past week. This is also evident in rates: in September, the market was expecting 170 basis points of Fed cuts next year, but we’ve since seen a large re-pricing, with about 70 basis points of cuts priced out. That’s less monetary support, less liquidity for markets, and it’s a headwind for equities.

What’s interesting about these observations—and the context for thinking about markets in the near term—is that our medium-term models are generating a relatively clear sell message. You can see that on your screen now with our sell-off indicator. This indicator is designed to warn of waves of risk aversion in global markets, and it does this when it reaches plus 20. Currently, it’s at a reading of plus 31. Signals are relatively rare, with prior ones generated last summer when the model hit the plus 20 threshold, correctly warning of that pullback from early August to late October.

So, the key question is whether one should be short in this market. Will momentum continue to roll over and accelerate to the downside in the near term, or will our sell-off indicator simply rise to yet a higher level over the next one to two weeks?

We answer all those questions and more in our short-term risk appetite gauge publication, in which we make a one- to two-week trading recommendation on long or short US equity futures. It’s available on the website to subscribers, and we also offer a free trial if you’re interested. Click on the link below, enter your name and email address, and we’ll set you up with a free trial of our daily publication.

What gives us an edge as we make these calls on markets? It’s not just the medium-term models and the sell-off indicator. We also have a suite of short-term models, like the one you see on your screen now. This is our technical scoring system for the S&P 500. It’s helped identify turning points in markets and good at timing entry into one- to two-week swing trades for the S&P 500.

So, how are we trading in this market? What signals are we getting from other short-term models? Take a look at today’s publication for details on all of that.

What are we watching this week? Tomorrow, out of the US, there’s job openings and consumer confidence. Wednesday brings Q3 GDP not only in the US but also in several Eurozone economies. Friday, all eyes will be on non-farm payrolls. We’ve also got five of the major tech companies reporting their earnings this week, and on Wednesday, there’s the long-awaited Labour government budget.

That was your morning market hit. Do follow us on YouTube by searching for Shortview Trading, and join us on Twitter, LinkedIn, and Facebook. Thanks for listening.

FIG1: S&P500 earnings report overview

1-Oct-29-2024-11-02-41-0743-AM