Well, it looks like we’re back to Bizarro World with the stock market, where bad news on the economy is good news for the stock market. First, QQQ stages a 2%+ intraday reversal to go from red to a solid green close on very clear additional evidence that the economy is slowing at a faster rate than the majority had anticipated with yesterday’s ISM Non-Manufacturing (Services) Index report coming in well below expectations. Today, the stock futures exploded nearly 1% higher at 8:30 am when New Jobless Claims came in hot at 219k vs. a consensus of 216k. The reason for the market taking clearly bad news on the economy as good news for stocks is that it only increases the odds of additional rate cuts from the Fed.
Personally, I have little to no doubt that an economic contraction or recession will trump any benefits of marginally lower rates. The stock market WILL fall if the economy continues to slow and the longer the disconnect between stock prices & underlying fundamentals persist, the more powerful the reversion to the mean will be once it starts (assuming that it hasn’t already, as the stock market and all but the two main defensive sectors, utilities & consumer staples are still well off the highs). The big question and certainly a valid one would be will the recent weakness in the economy prove to be fleeting or the start of a prolonged contraction/recession. Only time will tell so let’s take a look at some things to watch for today & into next week in order to ascertain where we are likely going from here.
QQQ popped up to the top of Wednesday’s gap for a backfill of the gap + backtest of the yellow uptrend line (dual R level). Any move substantial above 187.11 in today’s regular session would be bullish with a rejection bearish. As of now, the near-term downtrend over the past 3+ weeks is still clearly bearish (SPY & QQQ making a series of lower highs & lower lows) with little to no evidence of a reversal at this time & as such, I favor the reversal on or around these resistance levels followed by a red close today.
QQQ 60m Oct 5th
The Jobless Claims pop has rallied /NQ up to the downtrend line off the Sept 19th highs, which has capped every advance since then other than the Sept 30-Oct 1st false breakout.
NQ 60m Oct 5th
Looking at the bigger picture (weekly charts) both QQQ & XLK remain below their Dec 24th uptrend lines with 6.5 hrs to go before this weekly candle is finalized.
XLK weekly Oct 5th
QQQ weekly Oct 5th