Market Direction Week of October 31, 2016

Market Direction: BEARISH alert issued 10/27/2016 

Last Week Review: Stock indexes were mixed on the week as the Dow Jones Industrial Average increased marginally, while the S&P 500 fell. Continuing the trend from last week, the dispersion was mostly driven by the third quarter's earnings season. The week ended on a positive note as GDP for the third quarter was reported at a better-than-expected 2.9%, its fastest pace since the third quarter of 2014.

Outside of next week’s November FOMC meeting the probability of a Fed interest rate hike increased across the board following this morning’s GDP report. I took a snapshot of the probabilities before and after the release of the GDP report and you can see that the odds of a December move increased from 72.5% to 75.9%. This is very close to the 78% level which was seen heading into last December’s FOMC meeting (the last time the Fed increased).

How the market finished last week, the S&P 500 down 0.7%, the Nasdaq down 1.3%, and the Dow up 0.1%.

This Week: Next week it looks like it’s going to be all about the Fed and the monthly jobs report. While an interest rate hike isn’t expected (currently a 17% probability), there’s always the potential for a market reaction to the Fed statement.

Expect more volatility next week as markets grapple with higher political and monetary policy uncertainty.

The news increases uncertainty both around the outcome of the presidential elections and the interest rate outlook (the probability of a December hike dropped from 75.6% to 69.2% following the news). Markets will probably be monitoring the polls more closely over the next week but the bottom line is that uncertainty has increased and more volatility is likely. Given this development and the weak technical setup heading into next week I think caution is warranted and the current stock market direction is bearish.

Economic Calendar: ISM Mfg Index (11/1), ADP Employment Report (11/2), FOMC Meeting Announcement (11/2), International Trade (11/4), Employment Report (6/3)

Some of the major earnings announcements on deck: MPWR, COH, GILD, FB, TWX.

$tockMarketDirection proprietary model is currently BEARISH. We strongly encourage you to monitor positions closely, exercise proper money management strategies and follow us at $tockMarketDirection for ALERTS we may issue advising a change in the current market direction. Stay tuned and follow us. If you have a testimonial or comment of how this website has helped you we would like to know, write us. Share with a friend. Cha-ching.

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