Apple Earnings Push DOW and Equities Higher – Jobs Report Misses the Mark: Full report and analysis.

This week was jam-packed with economic events and information.

The week began with Donald Trump’s former campaign manager, Paul Manafort being indicted.

This was the first strike of special investigator Rober Mueller as part of the Russia elections investigation.

On Wednesday the House Republicans release the long awaited details of the tax reform.  On Thursday the Wall Street Journal leaked news that Jerome Powell will be nominated for Fed Chair.

In between all these develeopments, we saw three central banks provide an update on their monetary policies.

Bank of Japan (BOJ), Federal Reserve and the Bank of England.

The week ended on a big miss in the October jobs numbers, closely scrutinized and monitored by the Fed.

Here is a closer look at the SP500 price action for the entire week (red vertical lines separated the week days):

 

 

Equity Markets Were Not All Bullish to End the Week

Despite the bullish sentiment of the week, not every equity market in the United States was moving to the upside.

While the SP500 did not close on record highs this week, the DOW and Nasdaq managed to close at all-time highs.

The chart below shows the following markets:

  • Top Left: SP500
  • Top Right: DOW Jones
  • Bottom Left: Nasdaq
  • Bottom Right: Russell 2000

You can see that while the DOW and Nasdaq squeezed out a rally, Russell 2000 did not have as remarkable of a week.  In fact, the 2000 small cap companies closed the week in the red.

So what caused this big divergence?

 

 

 

Apple Reports Very Strong Quarterly Earnings – Sends Stock 2.6% Higher to Fresh Highs

On Thursday at 4:30PM EST, Apple reported:

  • Q4 EPS of $2.07 vs $1.87 expected
  • $52.6B revenue vs $51.2B expected
  • Guides Q1 Fiscal up to $84 to $87 BN vs $83.3B expected (very bullish)
  • iPhone shipments 46.7M vs 45.5M expected
  • iPad shipments 10.3M vs 9.3M
  • Mac shipments 5.4M vs 4.9M
  • Other products revenue was up 18% quarter over quarter, and 36% year over year
  • Greater China revenue of $9.8B vs $8.9B expected

Overall, this was a blow out quarterly report on behalf of Apple. In addition, the company launched their new iPhone X in time for the holiday season.

The iPhone X model will start at $999 USD for the 64 GB model, the most expensive iPhone to date.  Sound expensive to you?

Yes.  But most consumers don’t seem to think so as the pre-orders on Friday sold out within minutes.

And it’s not just the device that’s expensive – because god forbid you drop your new phone:

 

None the less, investors rushed back into the stock, pushing prices up by 3.53% by the open on Friday.  This was a large part of the reason the DOW was so bullish this past week, and the technology sector got excited as a whole.

There is no reason to look to fade or buy puts on the company – it is poised to retrace down to $170 to $171 then take off to the upside through the holiday season.

Momentum and technials are supportive of a continued rally.  It is very likely we pull back a little more first however, and there is a huge support between $170 and $171.

 

Bank of England Hikes Rates – Traders Punished the Pound, Calling the Move a “Policy Error”

On Thursday November 2nd at 8AM EST – the Bank of England (BOE) made a historic move.

The BOE voted 7-2 in favor of raising rates by 0.25% to 0.50% as expected by economists and traders.  Hiking the rates was historic, because it was the first increase since 2007.

This news is typically bullish of the country’s currency.

However the market felt it was a policy error, and that the BOE acted too soon.  Especially since at the same time the BOE noted that inflation decreased, and decreased their future forecasts.  This mirrors the sentiment and actions of the Federal Reserve.

No inflation? No reason to raise rates? That’s okay – we raise them anyways.  We’ll get inflation soon… we promise.

Mark Carney noted that BREXIT was the biggest risk event of the future, and could warrant a “re-calibration of policy”. Translation, if Brexit makes the market tank we’ll cut again and add more liquidity through bond purchases.

As a result, the British Pound got … well… pounded.  Down over 1.35% between 8AM EST and into the European markets close for the week at 11:30AM EST.

Here is a 15 minute chart of the price action – the box highlights the immediate reaction to the announcement:

Friday’s Job Report Completely Misses the Mark – In Total Disobedience to Expectations

October’s private jobs report didn’t just whiff, it showed up and stunk up the entire room.

On Friday at 8:30AM the report dropped to wide anticipation:

  • 261,000 jobs created in October, versus 312,00 expected (some economists claimed as high as 400K)
  • Average hourly earnings of 0.0% versus 0.2% expected
  • This basically means that less jobs were created, and existing employees did not see a single penny increase in their pay
  • Unemployment rate dropped to 4.1% vs 4.2% (people who can’t find a job and quit the search creates a false bullish sentiment in this category)

This report was very bad.  But more important than the number of jobs is the quality and type of jobs.

So let’s take a look at that.

  • Manufacturing sector added 24,000 jobs vs 15,000 expected – which is good
  • Food service and drinking places jobs were one third of the 261k added – which is… bad

But despite the bad report, the markets sold off by 6 points on the SP500.  As soon as the US session opened at 9:30AM equities shrugged the report off and closed on session highs.

The US dollar rallied, and gold and VIX got smashed.

Here is an intraday chart of a few key markets and their reaction to the Payrolls data:

 

The New Fed Chair – Everything You Need to Know About Jerome Powell and His Economic Views

This week in our free daily morning market updates we talked about Jay Powell.

I discussed in detail what he believes in and how he differs from Janet  Yellen.

Watch the video here:

 

Next Week’s Economic Calendar

This week is significantly more calm and less packed with major economic news.

On Monday we’ll see some volatility around the Japanes Yen as Kuroda speaks.

Tuesday we will see a string of Central Bank speak, starting with Draghi early morning. Then we’ll hear from the Bank of Canada (BOC) and Janet Yellen 30 minute before the US close.

Wednesday is all about oil inventories.

Thursday is the weekly unemployment claims data.

And we finish the week off with some UK manufacturing data.

 

 

 

Weekly Market Sentiment

We think next week we will see a continuation in the bullish equity trend, and oil and the dollar will likely retrace.

  • SP500 and US equities: moderately bullish
  • Crude oil: bullish, longs on pull backs
  • US dollar: bullish, longs on pull backs
  • Volatility: remain below the 10 handle
  • Gold: bearish if we break below $1,265 once more

 

Good luck and good trading.

If you want to join us for some more in-depth analysis on how to trade next week – the Market Analysis LIVE webinars take place every Sunday at 8PM EST for subscribers of any one of our packages.

I look forward to seeing you at this week’s webinar.

 

 


The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.