Week Ahead: U.S. Equities, Oil To Test Uptrend; Bearish USD Could Boost Gold

Week Ahead: U.S. Equities, Oil To Test Uptrend; Bearish USD Could Boost Gold

Investing.com  | Oct 21, 2018 08:30

  • Most US indices finish the week lower
  • Earnings beats pressured by lowest home sales since 2015
  • Is credit crunch creating a financial crisis, hurting the dollar?

Most US stocks and indices including the S&P 500, NASDAQ Composite and Russell 2000, closed lower on Friday, as solid corporate earnings were severely pressured by weak housing data after existing home sales seriously disappointed, dropping 3.4 percent in August to their lowest level since November 2015. There was also a psychological factor driving volatility, the 31st anniversary of 'Black Monday,' when, on Monday October 19, 1987, global equity markets crashed.

While analysts continue to debate whether the current selloff is the beginning of a deeper correction or merely a buying opportunity, for many experienced traders and investors, a dark cloud hovers over the month of October. During the 1987 collapse, the Dow lost 508 points in just one day, making it among the worst single-day performances in stock market history.

Indices Slip But Defensive Sectors Shine

Stocks initially rose on Friday, with early reports beating estimates. PayPal (NASDAQ:PYPL) jumped 9.4 percent after the company beat on both earnings and revenue and boosted its outlook. Proctor & Gamble (NYSE:PG) surged 8.8 percent thanks to the best quarterly sales figures since 2013. American Express (NYSE:AXP) rose 3.8 percent after beating expectations and revising guidance upwards.

Some stocks, however, offset the gains. eBay (EBAY) dropped 8.9 percent to its lowest since December 2016 after Stifel Nicolaus downgraded its shares from buy to hold. DowDuPont (NYSE:DWDP) tumbled 1.9 percent after after the company cut the asset value of its agricultural business by $4.6 billion. American International Group (NYSE:AIG) slumped 2.9 percent after announcing it will likely post quarterly catastrophic losses of as much as $1.7 billion from such natural disasters as Hurricane Florence in the US and typhoons Jebi and Trami in Asia.

Overall, the S&P 500 Index edged down only slightly to finish the week, off 0.04 percent. However it was the third straight day of declines for the benchmark. Nevertheless, it was propped up for the second day by its 200 DMA as well as the bottom of a still-forming bearish rising flag, right above the uptrend line since the February 2016 bottom.

Defensive sectors Consumer Staples (+2.28 Friday and +4.41 percent weekly) and Utilities (+1.56 percent Friday and +3.06 for the week) outshone, while risk sectors Consumer Discretionary (-0.98 percent Friday and 1.97 percent weekly) led the losses, underscoring the risk-off attitude investors have assumed.


The NASDAQ plunged 0.48 percent, capping a three-day decline, as well as a three-week slide, losing 1.29 percent of value for the week. After crossing back above the 200 DMA in Friday’s early rally, it dropped back below it, where it closed for the weekend.

The Russell 2000 underperformed, falling 1.08 percent. It was down 0.59 percent for the week.

The Dow Jones Industrial Average was the only index to close in the green on Friday, up 0.26 percent. It gained 0.41 for the week, outperforming US peer indices and ending a three-day decline. However it found resistance at the 100 DMA.

The selloffs are still testing the very much current uptrend. What it all boils down to is strong economic data and earnings growth on the one hand, versus geopolitical risks on the other hand. Conservative traders should wait for confirmations of the trend's integrity, though more aggressive traders might view these selloffs as rare buying opportunities, with relatively minimal risk (if placing close stop-losses), as they receive the lowest stock prices relative to the uptrend since March.

DXY Daily

In FX markets, the dollar advanced 0.51 percent on a weekly basis. However, it lost 0.27 percent on Friday. This loss to close out the trading week is a bad omen for multiple technical reasons. It formed a bearish engulfing pattern, below the broken uptrend line since May 14, for the second time, and beneath the preceding early October peak.

Fundamentally, the credit market is demonstrating a growing tightening shortage, which has the potential to cause the next financial crisis.

Gold Daily

Such a dollar demise would, in all likelihood, boost gold. The yellow metal has been forming a pennant since last week, bullish with an upside breakout.

Oil Daily

After the growing tensions between the US and Saudi Arabia over the disappearance of journalist Jamal Khashoggi provided a boost for oil prices, the commodity tumbled following a 6.5 million barrel increase in US inventories last week, the fourth in a row. Exports, on the other hand, were down 1.8 million BPD, according to the US Energy Information Administration. Oil stocks rose sharply even as US crude production slipped 300,000 bpd to 10.9 million bpd last week, which analysts attributed to the effects of offshore facilities closing temporarily for Hurricane Michael.

While oil markets look adequately supplied for now after a significant production increase, despite the earlier market narrative indicating otherwise, in the last six months the energy industry has been coming under strain. The International Energy Agency said in its monthly report that the world’s spare oil production capacity was down to 2% of global demand, with further slippage likely. Technically, the price found support on Friday above the uptrend line since June 2017.

Week Ahead

All times listed are EDT


8:30: US – Chicago Fed National Activity Index (September): expected to fall to 0.15 from 0.18.


2:00: Germany – PPI (September): forecast to remain flat at 0.3% MoM and to fall to 2.9 percent from 3.1 percent YoY.

10:00: Eurozone – Consumer Confidence (October, flash): expected to fall further, to -3.0 from -2.9.

20:30: Japan – Manufacturing PMI (October, flash): index to rise to 52.6 from 52.5.


3:15 – 4:00 – French, German, eurozone Manufacturing and Services PMI (October, flash): eurozone Manufacturing reading to fall to 53.1 from 53.2 and Services to drop to 54.5 from 54.7.

9:45: US – Services and Manufacturing PMI (October, flash): Manufacturing to edge down to 55.5 from 55.6, while Services to rise to 54.1 from 53.5.

10:00: Canada – Bank of Canada Rate Decision: rates expected to increase to 1.75% from 1.5%.

10:00: US – New Home Sales (September): expected to grow by 630K from 629K MoM.

10:30: US – EIA EIA Crude Inventories (w/e 19 October): stockpiles to rise by 1.9 million barrels from 6.49 million a week earlier.


2:00: Germany – GfK Consumer Confidence (November): forecast to fall to 10.5 from 10.6.

4:00: Germany – IFO Business Climate (October): business climate index to fall to 103.2 from 103.7.

7:45: ECB – Rate Decision (press conference @ 1.30pm): no change in policy expected.

8:30: US – Durable Goods Orders (September): forecast to drop to -1.1% from 4.4% MoM overall and rise 0.3% fro 0.1% MoM excluding transportation orders.

10:00: US – Pending Home Sales (September): sales to fall 0.2% from -1.8% MoM.


8:30: US – GDP (Q3, preliminary): growth to be 3.3% QoQ from 4.2% previous.


Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (UK) English (India) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
Saving Changes


Download the Investing.com App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.

Investing.com is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.