Stock Market Update: Monday, Oct. 26, 2020
Wall Street had its worst session since early September over the lack of a stimulus deal and escalating worries over a surge in coronavirus cases here in the U.S. and in Europe — and more in Monday’s stock market update.
Larry Kudlow, Director of the National Economic Council, said stimulus talks have “certainly slowed down” but are not not ending. The presidential election is a week away, which may be causing some nervousness as well.
Stock Market Update
The Dow dropped 2.3% following an afternoon fade to 27,370.
The Russell 2000 tumbled 2.2% with the intraday bottom hitting 1,586.
The S&P 500 fell 1.9% following the late-day slide to 3,364.
The Nasdaq gave back 1.6% after testing a session low of 11,221.
Energy was the weakest sectors after tanking 3.6% while Industrials and Materials were down 2.5%. There was no sector strength.
Stock Market Movers
Dunkin’ Brands Group, Inc. (Nasdaq: DNKN) shares jumped 16% after the company announced it has held preliminary discussions to be acquired by Inspire Brands for $106.50 per share. This represented a 20% premium with an enterprise value to EBITDA ratio of 22.9 times 2021 estimates. Some Wall Street analysts believe given the size of the potential deal combined with the valuation other potential suitors are unlikely to emerge.
Stock Market Outlook
The aforementioned charts show the major indexes have fallen out of relatively tight 14-session trading ranges following the breakout the first week of October.
Volatility had also confirmed the choppy action as the VIX (chart below) had remained trapped between its 50-day and 200-day moving averages since mid-September, or 31 straight sessions, until Monday’s sell-off.
The close above the 30 level and the 200-day moving average likely means the stock market heads lower with increased volatility over the near-term. This level had been stretched several times with the high at 31.18 but held into the closing bell until Monday’s surge to 33.68.
On the flip side for the bulls, the VIX needed to clear and hold the 25-24 area and the 50-day moving average. This level came into play when the major indexes were making a run at fresh all-rime highs. Earlier this month, the VIX closed exactly on 25 with back-to-back intraday lows at 24.03 and 24.14.
Global Economy
European markets were lower across the board following soaring coronavirus-induced restrictions in Italy and Spain to curb the resurgence.
Germany’s DAX 30 plummeted 3.7%. France’s CAC 40 sank 1.9% and the Stoxx 600 stumbled 1.8%. UK’s FTSE 100 declined 1.2% and the Belgium20 was off 1.1%.
Asian markets settled lower with Hong Kong’s Hang Seng closed for a holiday.
China’s Shanghai fell 0.8% and South Korea’s Kospi dropped 0.7%. Australia’s S&P/ASX 200 dipped 0.2% and Japan’s Nikkei slipped 0.1%.
U.S. Economy
Chicago Fed National Activity Index slipped -0.84 ticks to 0.27 in September, versus expectations for a reading of 0.39, after falling -1.5 points to 1.11 in August. The three-month moving average declined to 1.33 in September from 3.22 in August. According to the report, 50 of the 85 indicators made positive contributions, with 35 making negative contributions.
Stock Market Sentiment
The iShares 20+ Year Treasury Bond ETF (Nasdaq: TLT) was up for the second straight session after surging to an intraday high of $160.02. Fresh and lower resistance at $160-$160.50 and the 200-day moving average was cleared but held.
New support is at $159-$158.50 followed by $157.50-$157.
Volatility Index
The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) snapped a three-session slide after zooming to a midday peak of 33.68. Prior and lower resistance at 33.50-34 was cleared but held. A move above the latter would signal additional strength towards 35.50-36.
Fresh support is at 32-31.50 followed by 31-30.50 and the 200-day moving average.
Stock Market Analysis
The Wilshire 5000 Composite Index (NYSE: WLSH) fell for the first time in three sessions with the intraday low tapping 34,742. Prior support from the beginning of the month at 35,000-34,750 and the 50-day moving average was breached but held. A close below the latter would indicate additional weakness towards 34,500-34,250.
Lowered resistance is at 35,250-35,500.
RSI is in a downtrend after failing to hold key support at 50. Continued closes below this level would indicate additional weakness towards 45-40 and levels from late September. Resistance is at 55-60.
Sector
The SPDR Gold Shares (NYSE: GLD) was up for the first time in three sessions after testing an intraday high of $179.14. Current and lower resistance at $179-$179.50 was breached but held. A close above the latter would be a more bullish signal for a retest towards $180.50-$181 and the 50-day moving average.
Support is at $178.50-$178. A close below $177.50 would be a slightly bearish development with additional downside risk towards $175.50-$175.
RSI is approaching lower resistance at 50-55 with a close above the latter suggesting additional strength towards 60-65 and mid-August peaks. Support is at 45-40.
Check back after the closing bell each day for the most important news and numbers in the WealthPress stock market update.