Even though the Dow Jones Industrial Average couldn’t hold onto a 414-point rally on Friday, closing up 250 points was more impressive in many ways.

A part of the reason the session was impressive was the would-be savior of the market, JPMorgan Chase (JPM). The company posted earnings, and after initially moving higher, the stock was the worst performer in the Dow.  Also, the big banks were supposed to lift the market higher. Instead, after an early bounce, their gains faded, and so did the gains in the broader market.

Investors ignored the failure of the rally, but unlike every other session last week, they didn’t panic. On the contrary, it turns out the real buy signal wasn’t opening higher, but the dip into negative territory was what buyers had to see.

More succinctly, the ability to freefall 400 Dow points and not trigger a domino panic was big.

The moral of the story is, for now, sellers might be tapped out as panic selling dried up, and panic buying rallied the market into the close. The focus is on stocks that have made investors a lot of money in a short period of time. 

Technology

• (AAPL) Apple with sector weighting of 21% rallied $7.70 or 3.6%
• (MSFT) Microsoft at 17%, sector weight rallied 3.5%.
• (V) Visa at 5.0% sector weight rallied $6.33 or 4.75

Consumer Services

• (NFLX) Netflix: 4.2% of the sector +$18.46 or 5.8%
• (GOOG & GOOGL): Alphabet C &A shares are a combined 23% of the sector; both rallied close to 3.0%
• (ATVI) Activision: 4.4% weighting +$5.51

Consumer Discretionary

• (AMZN) Amazon, which is 22% of the sector, surged $69.21 or 4.0%
• The other winners were all beaten-down names: L Brands (LB), Macy’s (M), Nordstrom (JWN), and Foot Locker (FL)

S&P 500 Index	+1.42%
Communication Services (XLC)	+2.23%
Consumer Discretionary (XLY)	+1.85%
Consumer Staples (XLP)	+0.56%
Energy (XLE)	+0.27%
Financials (XLF)	+0.11%
Health Care (XLV)	+1.54%
Industrials (XLI)	+0.67%
Materials (XLB)	+0.28%
Real Estate (XLRE)	-0.06%
Technology (XLK)	+3.21%
Utilities (XLU)	-0.11%

Sadly, there wasn’t much more bottom-fishing or value-buying. Market breadth was better measuring advancers and the up volume, but that one key milestone metric is still worrisome.

• NYSE: 10 new 52-week highs against 396 new lows
• NASDAQ: 17 new 532-week highs against 267 new lows

Investors returned to names that led on the way up, although Facebook (FB) was very unimpressive. 

Today’s Session

Geopolitical Influences

• Saudi Arabia – the stock market tumbled more than 7% before some stabilization. However, there are big questions over the death of the Saudi columnist, Jamal Khashoggi, who visited the Saudi Consulate in Istanbul and hasn’t been seen leaving amid reports of his gruesome torture and murder.  President Trump has promised strong action if it’s proven was murdered at the behest of Mohammad Bin Salman. Other big financial players aren’t waiting, as Jamie Dimon and Richard Branson are just two big names to withdraw from a scheduled investor conference.Saudi Arabia only attracted $1.4 billion in Foreign Direct Investment (FDI) last year, it’s the lowest level in 14 years.
• United Kingdom – still, there’s no final deal on the British Exit as European Union (EU) negotiators continue to drag their feet, and the London political elite attempt a last-minute sabotage. 
• China – representatives of the People’s Bank of China (PBOC) say they are bracing for the worst in the trade battle with the United States. Meanwhile, the yuan is at an 18-month low to the U.S. Dollar and nearing the pivotal 7- to-1 ratio that many consider a red flag. The International Monetary Fund (IMF) is providing cover for the Chinese, saying the yuan is ‘fairly valued,’ perhaps in hopes of influencing America from calling out China as a currency manipulator.

Earnings Front

This week, it’s all about earnings with 54 S&P 500 components set to release their Financials:

• Today, Bank of America (BAC) gets a chance to turn it around for Financials.
• Tuesday, all eyes will be on Netflix (NFLX), which must deliver a knockout report and strong guidance.
• If that happens, keep an eye on the NASDAQ, which finished right at the 200-day moving average. Moving above there will attract a lot of buying, and we could see a parabolic move higher.

 Conversely, the stakes are higher and so is anxiety.  

NASDAQ

This is a very critical week for the market.

Bank of America posted solid earnings this morning, but the initial reaction has been mooted.  That said, equity futures have overcome huge overnight losses in preopening trading.

While conventional wisdom was correct that money flowed into bonds last week, it wasn’t at the expense of equities.  Instead, corporate bonds took a shellacking.  There were net inflows into the S&P 500 and Dow Jones ETFs, but the Russell 2000 saw significant outflows.

ETF Fund Flows	Contribution	AUM change
SPY	$5.6B	+2.8%
VOD	$1.2B	+1.2%
DIA	$684M	+3.1%
TLT	$587M	+7.5%
EWJ	$567M	+3.4%

ETF Fund Flows	Redemptions	AUM change
HYG	$2.8B	-17.4%
RUT	$1.2B	-13.5%
AGG	$2.2B	-4.0%
JNK	$1.3B	-14.3%
LQD	$1.2B	-3.7%

Retail sales out this morning missed on headlines, but there are intriguing internal trends, including the so-called control group, which augurs for strong 3Q18 GDP number.

There will be more details on the afternoon note along with Empire State Manufacturing report, which came in better than expected.

Comments

Charles, please could you answer a question? Is Sears is going bankrupt what happens to debt cards, Sears credit card, or even DISCOVER? We know their are banking underwriting partners but will all debt expenditure be due immediately, or interest rates triple?. Anything that you can please post would be helpful, to all the dirty fingernail worker's give you appreciation for TRUTH & FACTS, knowledge. Thank you Charles PAYNE & FBN J on 10/15/2018 6:03:20 PM

Excellent analysis. Good job. Thanks for the info. Lew Holt on 10/15/2018 7:35:12 PM

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