Wennco Market Views: October 2018 Update

Updated: Jun 8, 2019

October Recap:

October was a wild and painful ride for most global markets. After the third quarter registered the strongest quarter for the S&P 500 Total Return Index in 5 years, it was followed by the worst month in 6 years. Quite the contrary to 2017, this year has seen more 3-sigma moves than virtually any year post-2008. A few notable October highlights: The S&P 500 lost its 200 day moving average, the VIX spent a couple of weeks between 22 and 27, crowded longs – especially in tech – were pummeled (e.g. NVDA lost 40% in a 3-week timespan this month before recouping some of its losses in the last two days of the month); interest rates barely budged from relatively high levels (vs the past few years) ; crude oil lost 14% in 20 days (10/3 – 10/23); China’s Hang Send Index lost 10% (9.97% to be exact); the leader of the free world (AMZN) shed nearly 20% (the stock is still up nearly 40% YTD), and countless more major moves that could also be listed here. With the mid-terms approaching and earnings season over half completed, will a strong year-end rally ensue in this historically strong calendar season? Or will November/December be a continuation of October and bring more weakness and uncertainty? Opportunities to generate alpha have finally returned to global equity markets, and continuation of this is the one trend and forecast I will make.


S&P 500 KEY LINE IN THE SAND

Source: Bloomberg


KEEP WATCHING THE DXY (U.S. DOLLAR)

Source: Bloomberg


TRANSPORTS

Source: Bloomberg


10-YEAR TREASURY YIELDS

Source: Bloomberg


30-YEAR TREASURY YIELDS

Source: Bloomberg


3-MONTH LIBOR

Source: Bloomberg


MATERIALS VS. SPX: 5-YEAR RATIO AT THE LOWS (Overweight Idea)

Source: Bloomberg


REGIONAL BANKS VS. DIVERSIFIED LARGE CAP FINANIALS: 5-YR RATIO IN 10th PERCENTILE (Overweight Idea)

Source: Bloomberg


GERMANY’S DAX LOST 1 KEY TRENDLINE, NEXT UP IS A MUCH LONGER-TERM TRENDLINE AROUND 11,000

Source: Bloomberg


CRUDE OIL: WATCH $59/bl - $75-$76/bl

Source: Bloomberg


RANDOM CHART OF THE MONTH: NETFLIX’S NEGATIVE FREE CASH FLOW..YIKES!

Source: Bloomberg


I hope everyone has a great November. Stay nimble out there.


Chris Wenner

CIO & Head Trader

Wennco Downshift Strategies


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