Market Direction Weekly Closing Numbers©

Market Direction: BEARISH alert issued 10/27/2016

The economy

This week brought on a bearish alert and a change in the stock market’s direction. 

The past week was packed with earnings releases and the economic calendar also featured a few noteworthy reports, but all things considered, the S&P 500 respected a fairly narrow range. The index surrendered 0.7% for the week while the Dow Jones Industrial Average added 0.1% and the tech-heavy Nasdaq underperformed, falling 1.3%.

The underperformance in the Nasdaq was mostly due to relative weakness in biotechnology. The iShares Nasdaq Biotechnology ETF lost 2.7% for the week with Amgen falling 9.6% on Friday despite beating quarterly expectations. The Friday weakness in biotechnology was exacerbated by a poor quarterly showing from drug distributor McKesson (-22.4%). The company's report and guidance reminded that the pharmaceutical industry continues wrestling with pricing concerns that may become a regulatory issue once again, especially if Hillary Clinton wins the presidency.

However, Mrs. Clinton's chances were called into question on Friday afternoon after Congressman Jason Chaffetz tweeted that the FBI is once again looking at the presidential candidate after new pertinent information came to the forefront. The news introduced uncertainty ahead of the upcoming election, knocking the stock market from its high. Interestingly, biotech names climbed off their lows after the news began making the rounds.

Biotechnology's woes were in focus as the week drew to its close, but a couple other heavily-weighted Nasdaq components also contributed to the relative weakness in the composite. Specifically, Apple (AAPL) ended the week lower by 2.5% after releasing an underwhelming quarterly report. Similarly, Amazon (AMZN) surrendered 5.3% for the week after missing expectations.

Rate hike expectations for December firmed up after New Home Sales (593K; Briefing.com consensus 610K) and Pending Home Sales (+1.5%; Briefing.com consensus 0.6%) for September beat expectations. Third-quarter advance GDP also surprised to the upside (2.9%; Briefing.com consensus 2.5%) while September Durable Orders (-0.1%; Briefing.com consensus 0.0%) and October Consumer Confidence (98.6; Briefing.com consensus 100.8) fell short of estimates. The implied probability of a December hike increased to 74.2% from last Friday's 69.9%, as indicated by the fed funds futures market.

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By the numbers the weekly closing index numbers compared to the initial BEARISH recommendation closing numbers: 

Stock Market Closing Numbers
compared to Recommendation Numbers
	10/27/2016	10/28/2016	Difference
Dow Jones	18,169.68	18,161.19	8.49
Nasdaq	5,215.97	5190.10	25.87
S&P 500	2,133.04	2,126.41	6.63

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