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 Post subject: October 27th Monday Trade Results - Profit $3090.00
PostPosted: Tue Oct 28, 2014 12:20 am 
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Joined: Sat Jan 10, 2009 1:06 pm
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Trade Results of M.A. Perry
Trader and Founder of WRB Analysis (wide range body/bar analysis)
Price Action Trading (no technical indicators)
Phone: +1 708 572-4885
Free Chat Room: http://www.thestrategylab.com/tsl/forum/viewforum.php?f=164
Business Hours: 8am - 5pm est (Mon - Fri)
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click on the above image to view today's performance verification

Price Action Trade Performance for Today: Emini TF ($TF_F) futures @ $3,090.00 dollars or +30.90 points, Emini ES ($ES_F) futures @ $0.00 dollars or +0.00 points, Light Crude Oil CL ($CL_F) futures @ $0.00 dollars or +0.00 points, Gold GC ($GC_F) futures @ $0.00 dollars or +0.00 points and EuroFX 6E ($6E_F) futures @ $0.00 dollars or +0.0000 ticks. Total Profit @ $3,090.00 dollars

Russell 2000 Emini TF Futures: 1 tick or 0.10 = $10.00 dollars and there's more contract information @ The ICE
S&P 500 Emini ES Futures: 1 tick or 0.25 = $12.50 dollars and there's more contract information @ CMEGroup
Light Crude Oil CL (WTI) Futures: 1 tick or 0.01 = $10.00 dollars and there's more contract information @ CMEGroup
Gold GC Futures: 1 tick or 0.10 = $10.00 dollars and there's more contract information @ CMEGroup
EuroFX 6E Futures: 1 tick or 0.0001 = $12.50 dollars and there's more contract information @ CMEGroup

Trade Log: All of my trades were posted real-time in the timestamp ##TheStrategyLab chat room. You can read today's price action trading information about my trades (e.g. time, price entry, contract size, price exit) as the trade traversed to its completion. Also, sometimes I'll post real-time trading tips involving WRBs, WRB Hidden GAPs, Key Market Events (KME), Tutorial Chapters 2 & 3, WRB Zones, Reaction Highs/Lows, Contracting Volatility or Expanding Volatility. Its all archived @ http://www.thestrategylab.com/ftchat/forum/viewtopic.php?f=135&t=1919

Quote:
If any of my real-time posted trades are via key concepts discussed in the WRB Analysis free study guide or the Fading Volatility Breakout (FVB) free trade signal strategy...I will discuss the reasons (trade strategy) behind those trades if/when a user of ##TheStrategyLab chat room ask questions about the trades. In contrast, real-time posted trades that are via the Advance WRB Analysis Tutorial Chapters 4 - 12 or the Volatility Trading Report (VTR) trade signal strategies...I discuss the reasons (trade strategy) behind those trades with fee-base clients in a different private chat room that's designated only for fee-base clients or discuss the strategies with fee-base clients on my Skype contact list.

Also, posted below are direct links to information about my price action trade methodology and trading plan (there's a difference between the two) that enables me to identify key trading areas in the price action that represent changes in supply/demand and volatility along with being able to exploit these changes via WRB Analysis (wide range body/bar analysis). I'm primarily a day trader because it suits my personal lifestyle but I do occasionally swing trade and position trade. Simply, my trade method is applicable for position trading, swing trading and day trading.

Image ##TheStrategyLab Chat Room is free. Members and I use the chat room to post WRB Analysis commentary, real-time trades and to post anything else related to trading. The chat room helps me tremendously in my own trading because I use it to document (journal) general volatility analysis involving WRB Analysis so that I can easily review at a later date my thoughts as I interacted with the markets...info I can not get from my broker statements. Also, this is not a signal calling chat room where a head trader tells you when to buy or sell and I do not have the time/energy/resources to manage a signal calling chat room. Access instructions for chat room @ http://www.thestrategylab.com/tsl/forum/viewforum.php?f=164

Image Price Action Analysis via WRB Analysis Tutorials @ http://www.thestrategylab.com/WRBAnalysisTutorials.htm and there's a free study guide of the WRB Analysis Tutorial Chapters 1, 2 and 3 @ http://www.thestrategylab.com/tsl/forum/viewtopic.php?f=119&t=718

Image Trade Signal Strategies via Volatility Trading Report (VTR) @ http://www.thestrategylab.com/VolatilityTrading.htm and there's a free trade signal strategy @ http://www.thestrategylab.com/tsl/forum/viewforum.php?f=89 so that you can freely test drive one of our price action trade strategies with support (answering your questions) prior to purchasing the Volatility Trading Report (VTR).

Image Trading Plan Daily Routine @ http://www.thestrategylab.com/tsl/forum/viewtopic.php?f=248&t=2530

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Market Context Summaries

The below summaries by Bloomberg, CNNMoney, Reuters and Yahoo! Finance helps me to do a quick review of the fundamentals, FED/ECB/BOE/IMF actions or any important global economic events (e.g. Eurozone, MarketWatch.com) that had an impact on today's price action in many trading instruments I monitor during the trading day. Simply, I'm a strong believer that key market events causes key changes in supply/demand and volatility resulting in trade opportunities (swing points and strong continuation price actions) that reach profit targets. Thus, I pay attention to these key market events, intermarket analysis (e.g. Forex EurUsd, EuroFX 6E futures, Gold GC futures, Light Crude Oil (WTI) CL & Brent Oil futures, Eurex DAX futures, Euronext FTSE100 futures, Emini ES futures, Emini TF futures, Treasury ZB futures and U.S. Dollar Index futures) while using WRB Analysis from one trade to the next trade to give me the market context for price action trading before the appearance of my technical analysis trade signals. Therefore, I maintain these archives to allow me to understand what was happening on any given trading day in the past involving key market events to help better understand my trade decisions (day trading, swing trading, position trading)...something I can not get from my broker statements alone. Further, most financial websites remove (delete) their archives after a few years to make room for new content. Therefore, I maintain my own archives of the news content so that I have it available for me when financial websites no longer archives their content.

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click on the above image to view today's price action of key markets

4:10 pm: [BRIEFING.COM] The stock market began the last week of October on a cautious note. The S&P 500 slipped below its 100-day moving average (1962) and settled lower by 0.2% while the Dow Jones Industrial Average (+0.1%) outperformed throughout the session.

Equity indices faced selling pressure at the start, but the source of the early weakness was isolated to the two commodity-linked sectors that spent the entire session at the bottom of the leaderboard.

The energy sector (-2.0%) suffered from a Goldman Sachs downgrade of several major industry players, which stemmed from expectations that crude oil would trade between $70-$80/bbl. On that note, the energy component fell below the $80/bbl level in the morning, but narrowed its decline to just 0.1% by the pit close ($80.94/bbl). The rebound was assisted by a modest downtick in the Dollar Index (85.53, -0.20), which slipped 0.2%.

Elsewhere, the materials sector (-2.1%) endured broad pressure. Miners lagged with the Market Vectors Gold Miners ETF (GDX 20.11, -0.36) falling 1.8%, while steelmakers faced more aggressive selling. The Market Vectors Steel ETF (SLX 41.99, -1.15) lost 2.7% with Cliffs Natural Resources (CLF 9.22, -0.41) sliding 4.3% ahead of its earnings report.

Interestingly, the two cyclical sectors-and the telecom services space (+1.0%)-were the only groups that didn't settle in the neighborhood of their flat lines. Meanwhile, the remaining seven sectors ended with gains or losses of no more than 0.3%.

Generally speaking, countercyclical sectors held up well with the utilities sector (-0.2%) having the worst showing among the defensively-oriented groups. The rate-sensitive sector ended in-line with the market while the heavily-weighted health care space (+0.1%) registered a slim gain. The advance took place despite weakness in Allergan (AGN 182.33, -1.88) and Merck (MRK 56.45, -1.16), both of which reported earnings this morning. Allergan lost 1.0% despite reporting a bottom-line beat and upbeat Q4 earnings guidance while Merck slumped 2.0% after beating earnings estimates on a 4.3% year-over-year decline in revenue.

Treasuries climbed to highs shortly after the start of the session and spent the day near their best levels of the session. The 10-yr yield ticked down two basis points to 2.26%.

Participation was a bit below recent averages with 741 million shares changing hands at the NYSE floor. The relatively light volume was likely a function of some participants sticking to the sidelines ahead of Wednesday's release of the latest FOMC policy directive.

Economic data was limited to Pending Home Sales for September, which rose 0.3%. This was worse than the 0.5% increase forecast by the Briefing.com consensus, but ahead of last month's unrevised decrease of 1.0%.

Tomorrow, the Durable Orders report for September (Briefing.com consensus 0.6%) will be released at 8:30 ET while the Case-Shiller 20-city Index for August (consensus 5.5%) will cross the wires at 9:00 ET. The day's data will be topped off with the 10:00 ET release of the October Consumer Confidence report (expected 87.2).

Nasdaq Composite +7.4% YTD
S&P 500 +6.1% YTD
Dow Jones Industrial Average +1.5% YTD
Russell 2000 -3.9% YTD

3:35 pm: [BRIEFING.COM]

Oil prices dropped notably in early trading with U.S. prices falling below $80/barrel.
Crude traded lower overnight, reaching a low of 79.44, before recovering and trending higher for the rest of the session, closing near where it opened Sunday afternoon.
Dec crude ended 7 cents lower at $80.94/barrel
Nov nat gas dropped 1.8% to $3.56/MMBtu
Gold has been trading in a tight range since GLOBEX trading opened on Sunday, for the most part staying between 1228 and 1231.
The precious metal briefly traded at 1227.1 but quickly bounced back into its trading range.
Dec gold ended 0.2% lower at $1229.30/oz, while Dec silver rose 3 cents to $17.19/oz
Dec copper fell 2 cents to $3.06/lb

3:00 pm: [BRIEFING.COM] The S&P 500 trades lower by 0.4% with one hour remaining in today's session. The benchmark index slumped out of the gain amid weakness in the energy (-2.1%) and materials (-2.1%) sectors. The two groups continue showing large declines while most of the remaining sectors trade within 0.3% of their respective flat lines. The telecom services sector represents the lone exception, trading higher by 1.0%.

Investors received just one economic report today, but the remainder of the week will be a bit busier. Tomorrow, the Durable Orders report for September (Briefing.com consensus 0.6%) will be released at 8:30 ET while the Case-Shiller 20-city Index for August (consensus 5.5%) will cross the wires at 9:00 ET. The day's data will be topped off with the 10:00 ET release of the October Consumer Confidence report (expected 87.2).

2:30 pm: [BRIEFING.COM] Recent action saw the Dow Jones Industrial Average make another appearance in the green while the S&P 500 remains below its 100-day average (1962).

This morning was relatively quiet on the earnings front, but that is set to change after today's closing bell with nearly 60 companies covered by Briefing.com set to report their results. Amgen (AMGN 148.07, +0.81), Owens & Minor (OMI 33.72, -0.02), and Cliffs Natural Resources (CLF 9.44, -0.19) will headline this evening's list while tomorrow morning will feature about 90 reports.

BP (BP 41.90, -0.27), Honda Motor (HMC 30.90, -0.16), and UBS (UBS 16.22, -0.23) will report their results tomorrow, alongside Dow components Pfizer (PFE 29.07, -0.04) and DuPont (DD 68.05, -0.95).

1:55 pm: [BRIEFING.COM] Equity indices continue holding modest losses with the S&P 500 (-0.3%) back below its 100-day moving average (1962) after the index made a second short-lived appearance above that level.

Energy (-2.3%) and materials (-1.9%) have lagged since the opening bell while the other cyclical sectors have struggled to find direction. At this juncture, the consumer discretionary (+0.1%) sector is the lone advancer among cyclical groups while the top-weighted sector-technology-continues hovering near its flat line. The tech sector has traded within a shouting distance of its unchanged level since the opening bell.

With stocks remaining in the red, the CBOE Volatility Index (VIX 16.42, +0.31) is higher by 1.9%.

1:25 pm: [BRIEFING.COM] The major indices are little changed, yet that is being viewed as a pretty good disposition when taking into account the 2.0% drop in the energy sector and the huge gains logged last week.

The outsized gains last week presumably left the indices vulnerable to some selling interest. While there has been some selling activity today, the trade hasn't been a one-way affair. Stocks are still showing some rebound fight, which is probably keeping sellers on edge in front of Wednesday's FOMC announcement.

The Fed is expected to announce the end of its quantitative easing program, yet with the economic weakness abroad and the drop in oil prices interfering with inflation's trek to the Fed's 2.0% longer-run target, there is a residual sense that the FOMC will find a way to imply that the fed funds rate isn't going to be raised anytime soon.

Separately, strength in the 2-yr note today (down two basis points to 0.38%) speaks to the idea that market participants are comfortable with the idea that the fed funds rate won't be raised soon. To that end, the yield on this instrument has dropped sharply from 0.59% seen at the end of September.

12:55 pm: [BRIEFING.COM] The major averages trade lower across the board at midday. The S&P 500 is lower by 0.3% while the Nasdaq outperforms with a slim loss of 0.1%.

Equity indices started the new trading week on a lower note amid significant losses in the two commodity-related sectors. Energy (-2.2%) and materials (-2.1%) remain near their session lows while the remaining sectors have not been able to fuel a sustained rebound. As for the S&P 500, the index has made a brief appearance north of its 100-day moving average (1962) before pulling back.

The energy sector has suffered from a Goldman Sachs downgrade of several major players, which stemmed from expectations that crude oil would trade between $70-$80/bbl. To that point, the energy component has slipped below the $80/bbl level before narrowing its decline. Currently, oil trades down 0.4% at $80.65 after receiving a boost from a downtick in the Dollar Index (85.48, -0.25), which is lower by 0.3%.

For its part, the materials sector has faced broad pressure. Steelmakers have factored into the weakness with the Market Vectors Steel ETF (SLX 41.96, -1.18) trading lower by 2.7%.

Meanwhile, the remaining cyclical sectors trade much closer to their flat lines. The top-weighted technology sector has spent the first half of the session near its flat line while chipmakers have shown a measure of strength after Micron (MU 32.18, +1.13) announced a $1 billion stock buyback. Shares of MU are higher by 3.6% while the broader PHLX Semiconductor Index has added 0.3%.

On the countercyclical side, consumer staples (+0.2%) and telecom services (+0.5%) hold modest gains while health care (-0.1%) and utilities (-0.2%) hover below their flat lines. In the health care sector, Dow component Merck (MRK 56.01, -1.60) has surrendered 2.8% after reporting earnings. The drug maker beat bottom-line estimates, but the two-cent beat masked the fact that the company's revenue contracted by 4.3% year-over-year.

Treasuries climbed to highs at the start of the New York session and have maintained a narrow range since then. The 10-yr yield is lower by two basis points at 2.26%.

Economic data was limited to Pending Home Sales for September, which rose 0.3%. This was worse than the 0.5% increase forecast by the Briefing.com consensus, but ahead of last month's unrevised decrease of 1.0%.

12:25 pm: [BRIEFING.COM] The Dow (-0.2%), Nasdaq (-0.3%), and S&P 500 (-0.4%) continue holding modest losses while the Russell 2000 (-0.7%) remains behind the three indices.

The underperformance of small-cap stocks has had a mixed effect on high-beta areas of the broader market. Biotechnology has lagged since the start with the iShares Nasdaq Biotechnology ETF (IBB 287.38, -1.39) down 0.5%, while chipmakers display relative strength.

The PHLX Semiconductor Index (+0.1%) hovers just above its flat line with Micron (MU 32.09, +1.03) in the lead. The stock has jumped 3.3% in reaction to a $1 billion stock buyback that was authorized by the company's Board of Directors.

11:55 am: [BRIEFING.COM] The major averages have backed away from their rebound highs amid persistent pressure in today's two weakest sectors-energy (-2.6%) and materials (-2.1%). Furthermore, the utilities sector (-0.2%), which traded at its best level of the session within the past hour, has slid to a fresh low for the day.

Meanwhile, the remaining countercyclical groups continue trading ahead of the broader market, but they too have slid from their best levels of the day. The heavily-weighted health care (-0.2%) sector continues showing relative strength, but that outperformance could be fleeting considering biotechnology remains under pressure with the iShares Nasdaq Biotechnology ETF (IBB 287.50, -1.27) down 0.4%.

Also of note, Treasuries have climbed to a fresh high with the 10-yr yield down three basis points at 2.24%.

11:25 am: [BRIEFING.COM] Recent action saw the S&P 500 (-0.2%) overtake its 100-day moving average (1962) before slipping back below that level. Meanwhile, the Dow Jones Industrial Average (+0.1%) has climbed into the green.

Even though the price-weighted Dow shows relative strength, 14 of its 30 components have yet to climb out of the red. On the upside, top-weighted Visa (V 214.39, +0.91), Goldman Sachs (GS 183.64, +0.29), and IBM (IBM 162.71, +0.63) hold modest gains between 0.2% and 0.4%.

On the flip side, Merck (MRK 56.67, -0.94) trades down 1.6% and is the weakest index component after reporting earnings. The drug maker beat bottom-line estimates, but the two-cent beat masked the fact that the company's revenue contracted by 4.3% year-over-year.

10:55 am: [BRIEFING.COM] The major averages have climbed off their lows with the S&P 500 narrowing its decline to 0.2%. Given its current level, the S&P 500 hovers within three points of its 100-day moving average (1962).

Commodity-linked energy (-2.2%) and materials (-2.0%) continue showing notable losses, but the remaining cyclical groups trade much closer to their flat lines. Consumer discretionary (+0.2%) and technology (unch) outperform while financials (-0.1%) and industrials (-0.3%) sit just below their flat lines.

Elsewhere, the four countercyclical sectors continue showing strength with the telecom services sector (+0.9%) in the lead while consumer staples (+0.5%) follow not far behind. For its part, health care sits on its flat line amid weakness in biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 287.22, -1.54) is lower by 0.5%.

Treasuries remain near their highs with the 10-yr yield down two basis points at 2.25%.

10:35 am: [BRIEFING.COM]

WTI crude oil dropped below $80/barrel this morning as energy futures see another bout of weakness.
Dec crude oil is currently -1.5% at $79.79/barrel , while Nov natural gas is -1.9% at $3.55/MMBtu
The dollar index has been selling off in recent trade, which has given a boost to select commodities... a modest boost really
Dec gold is currently -0.2% at $1229.70/oz, while Dec silver is +0.1% at $17.20/oz
Dec copper has been showing some gains all morning and are now +0.5% at $3.05/lb

10:00 am: [BRIEFING.COM] The S&P 500 trades lower by 0.6%.

Just reported, pending home sales for September rose 0.3%, which was worse than the 0.5% increase forecast by the Briefing.com consensus. Today's reading followed last month's unrevised decrease of 1.0%.

9:40 am: [BRIEFING.COM] Equity indices slipped out of the gate amid weakness in the cyclical sectors. The S&P 500 trades lower by 0.4% while the Russell 2000 (-0.8%) lags.

Commodity-linked groups have faced the strongest selling pressure during the opening minutes. The energy sector (-2.5%) is the weakest performer while the materials space (-1.7%) also trades well behind the broader market. The energy sector has been pressured by a 1.6% decline in crude oil (79.67, -1.34) while heavily-weighted sector components like Chevron (CVX 113.95, -1.96) and ExxonMobil (XOM 93.25, -1.24) hold respective losses of 1.8% and 1.4%.

Meanwhile, the materials sector has been pressured by steelmakers as evidenced by the Market Vectors Steel ETF (SLX 42.08, -1.06), which trades lower by 2.5%.

Countercyclical groups have fared a bit better and they currently hold gains between 0.1% (health care) and 0.4% (telecom services).

The Pending Home Sales report for September will be released at 10:00 ET (Briefing.com consensus 0.5%).

9:14 am: [BRIEFING.COM] S&P futures vs fair value: -9.10. Nasdaq futures vs fair value: -10.50. The stock market is on track for a lower start with the S&P 500 futures trading nine points below fair value. Index futures held a slim gain during the Asian session, but slumped to lows once European markets opened for action. Disappointing data has contributed to the weakness with Germany's Ifo Business Climate Index coming in below expectations (103.2; expected 104.3).

Also of note, the European Central Bank released its stress test, which showed 25 banks with capital shortfalls. The figure was in-line with speculation from Friday, but Hans-Werner Sinn of Germany's Ifo Insitute pointed out that the test did not account for a deflationary scenario in Southern Europe. ECB's Victor Constancio countered, saying the ECB does not see deflation as a realistic possibility.

Domestically, investors have received several quarterly reports with another heavy batch of earnings expected over the course of the week. The health care sector will face some mixed signals after Allergan (AGN 187.00, +2.79) reported above-consensus results while Merck (MRK 57.55, -0.05) beat estimates, but reported a 4.0% year-over-year decline in revenue.

On the commodity front, crude oil has begun the week with a retreat, trading lower by 1.7% at $79.60/bbl even as the Dollar Index (85.67, -0.06) holds a slim loss of 0.1%.

Economic data will be limited to the Pending Home Sales report for September, which will be released at 10:00 ET (Briefing.com consensus 0.5%).

8:59 am: [BRIEFING.COM] S&P futures vs fair value: -7.10. Nasdaq futures vs fair value: -7.50. The S&P 500 futures trade seven points below fair value.

Markets in Asia started the week on a mixed note.

Economic data was limited to just two items:
Japan's Corporate Services Price Index came in at 3.5%, as expected
Hong Kong's trade deficit widened to HKD50.40 billion from HKD31.50 billion (expected deficit of HKD30.00 billion)

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Japan's Nikkei rallied 0.6% with Tokyo Electric Power in the lead. The stock surged 16.5% amid reports the company is likely to report strong results. FANUC Corp was the biggest laggard, down 4.3%.
Hong Kong's Hang Seng settled lower by 0.7% after spending the entire session in negative territory. Hong Kong Exchanges led the retreat, falling 4.7%, following a delay to an implementation of a cross-border trading link with China.
China's Shanghai Composite shed 0.5% after maintaining a narrow range near session lows. China Vanke fell 3.4% in reaction to disappointing results.
India's Sensex slumped into the close to end lower by 0.4%. Growth-sensitive names lagged with Tata Motors and Reliance Industries down 2.3% and 1.2%, respectively.

Major European indices trade lower across the board with Italy's MIB (-2.6%) showing the largest loss. Hans-Werner Sinn of Germany's Ifo Insitute threw cold water on ECB's self-congratulatory press conference that followed the release of the stress test, saying the ECB did not account for a deflationary scenario in Southern Europe. The ECB was quick to offer a rebuttal, saying such scenario is not within the realm of possibilities.

In economic data:
Eurozone Private Loans fell 1.2% year-over-year (expected -1.3%; prior -1.5%)
Germany's Ifo Business Climate Index slipped to 103.2 from 104.7 (expected 104.3) as Business Expectations fell to 98.3 from 99.3 (expected 98.9) and Current Assessment dropped to 108.4 from 110.5 (consensus 110.0)
Great Britain's CBI Distributive Trades Survey held at 31 (expected 25)

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Great Britain's FTSE is lower by 0.5% with financials on the defensive. Aberdeen Asset Management, HSBC Holdings, and Lloyds Banking Group are down between 0.8% and 2.6%. Consumer names outperform with InterContinental Hotels and TUI Travels up 2.5% and 2.0%, respectively.
In France, the CAC trades down 1.1%. Bank shares lag with BNP Paribas, Credit Agricole, and Societe Generale down between 1.8% and 3.4%. Similar to the UK, consumer names display strength with Essilor International, L'Oreal, and LVMH up between 0.3% and 0.4%.
Germany's DAX has surrendered 1.1% amid broad weakness. Producers of basic materials lag with BASF and Lanxess holding respective losses of 3.3% and 1.5%. Commerzbank outperforms, trading flat.
Italy's MIB is lower by 2.6% after several Italian banks failed the ECB's stress test. BMPS has plunged 19.8% after the test revealed a large shortfall at the bank.

8:29 am: [BRIEFING.COM] S&P futures vs fair value: -3.60. Nasdaq futures vs fair value: -2.80. U.S. equity futures continue hovering near their pre-market lows with the S&P 500 futures four points below fair value. Index futures have respected an 11-point range throughout the night with a high registered just before markets in Europe opened for action. U.S. futures then followed European equities into the red, where they remain at this juncture.

This week will bring the second heavy batch of Q3 earnings, but this morning was relatively quiet on that front. The health care sector is expected to display early strength after Allergan (AGN 187.31, +3.10) and Merck (MRK 57.67, +0.06) reported better than expected results.

8:00 am: [BRIEFING.COM] S&P futures vs fair value: -2.90. Nasdaq futures vs fair value: -2.00. U.S. equity futures trade modestly lower amid cautious action overseas. The S&P 500 futures trade three points below fair value after slipping from their overnight highs at the start of the European session. On Sunday, The European Central Bank released its stress test, which as speculated on Friday, showed 25 banks with capital shortfalls. The euro has essentially held its ground and currently trades at 1.2670, near its settlement level from Friday. Meanwhile, European markets opened higher, but slumped into the red with a disappointing Ifo survey from Germany contributing to the pressure.

Treasuries are little changed with the 10-yr yield at 2.27%.

The Pending Home Sales report for September will be released at 10:00 ET (Briefing.com consensus 0.5%).

In U.S. corporate news of note:

Alcoa (AA 16.76, +0.21): +1.3% after Deutsche Bank upgraded the stock to 'Buy' from 'Hold.'
Allergan (AGN 187.00, +2.79): +1.5% in reaction to its bottom-line beat and upbeat Q4 earnings guidance.
Merck (MRK 58.00, +0.39): +0.7% after beating bottom-line estimates and narrowing its guidance.

Reviewing overnight developments:

Asian markets ended on a mixed note. Japan's Nikkei +0.6%, Hong Kong's Hang Seng -0.7%, and China's Shanghai Composite -0.5%
Economic data was limited:
Japan's Corporate Services Price Index came in at 3.5%, as expected
Hong Kong's trade deficit widened to HKD50.40 billion from HKD31.50 billion (expected deficit of HKD30.00 billion)
In news:
Property developers in China were pressured after China Vanke reported disappointing results for the third quarter.

Major European indices trade lower across the board. Great Britain's FTSE -0.2%, Germany's DAX -0.5%, and France's CAC -0.5%. Elsewhere, Spain's IBEX -0.9% and Italy's MIB -1.5%
In economic data:
Eurozone Private Loans fell 1.2% year-over-year (expected -1.3%; prior -1.5%)
Germany's Ifo Business Climate Index slipped to 103.2 from 104.7 (expected 104.3) as Business Expectations fell to 98.3 from 99.3 (expected 98.9) and Current Assessment dropped to 108.4 from 110.5 (consensus 110.0)
Great Britain's CBI Distributive Trades Survey held at 31 (expected 25)
Among news of note:
Hans-Werner Sinn of Germany's Ifo Insitute threw cold water on ECB's self-congratulatory press conference that followed the release of the stress test, saying the ECB did not account for a deflationary scenario in Southern Europe. The ECB was quick to offer a rebuttal, saying such scenario is not within the realm of possibilities.

6:38 am: [BRIEFING.COM] S&P futures vs fair value: -2.40. Nasdaq futures vs fair value: -2.00.

6:38 am: [BRIEFING.COM] Nikkei...15388.72...+97.10...+0.60%. Hang Seng...23413.23...-159.00...-0.70%.

6:38 am: [BRIEFING.COM] FTSE...6364.37...-24.40...-0.40%. DAX...8929.32...-58.50...-0.70%.

S&P 500's Rise at Five Times GDP Growth Shows Recovery Is Priced Into Stocks

By Lu Wang Oct 27, 2014 4:15 PM ET

For almost six years, one of the most powerful bull markets on record has coexisted with the weakest economic recovery since World War II. This month’s selloff in stocks shows how much investors want that to change.

In the latest fit of nerves, market volatility soared to a three-year high and the Standard & Poor’s 500 Index dropped as much as 9.8 percent in the 26 days ending Oct. 15. Everything from Ebola to Europe and the Federal Reserve were blamed for the retreat, the fourth to exceed 3 percent this year.

Another explanation is that investors are finding their patience taxed after waiting five years for economic growth to catch up with the market. From March 2009 through June 2014, the S&P 500 has increased 4.7 percent a quarter, about five times faster than gross domestic product, data compiled by Bloomberg show. That’s the biggest gap since at least 1947.

“I don’t think the dispersion can sustain at the level that it did, which is why the market is struggling,” Daniel Genter, who oversees about $4.5 billion as chief executive officer at Los Angeles-based RNC Genter Capital Management, said in a phone interview on Oct. 22. “The market wants to see growth going in the right direction or it’s going to be upset.”

As quickly as markets lurched, they recovered, with the Chicago Board Options Exchange Volatility Index (VIX) dropping 27 percent last week as the S&P 500 increased 4.1 percent. Data on housing and consumer confidence showed acceleration in the American economy, while the European Central Bank added to bond purchases, quieting concern about a region whose economy is at risk of falling into a third recession since 2009.

The S&P 500 fell 0.2 percent at 4 p.m. in New York.

Market Signal

Stocks have historically started to climb before GDP, anticipating economic expansions by an average of two months, data beginning in 1927 show. In 14 recessions since then, the S&P 500 posted gains of 12 percent in the quarter prior to a rebound in GDP. That happened in 2009, when the index rose 15 percent in the April-June quarter, the last of the recession.

Anyone using above-average GDP gains as a signal to buy would have missed the 190 percent advance in the S&P 500 since March 2009 that rivals almost any rally in the past nine decades. While economic growth has held below 3 percent, stocks rallied as the U.S. unemployment rate fell to 5.9 percent from a 26-year high of 10 percent in October 2009, interest rates stayed at record lows and new home sales climbed 73 percent since 2011.

Better Guide

“I don’t think you can find a relationship, a consistent ratio, between economic growth and the stock market,” Laszlo Birinyi, president of Birinyi Associates Inc. in Westport, Connecticut, said in a phone interview. “Maybe what we saw in 2010, 2011 was a stronger market than the economy. Maybe going forward, we’ll see the economy catch up and the stock market may not have strong gains.”

Throughout the rally, corporate profits have been a better guide than GDP growth for when to buy stocks. With S&P 500 12-month earnings doubling to $103.21 a share since the end of 2009, the index trades at a price-earnings ratio of 19, compared with its average of 25 since 1990, data compiled by Bloomberg and S&P Dow Jones Indices show.

At the same time, investors are concerned that the money was made via means that are nearing depletion. Earnings have grown at an annual rate of 14 percent since 2009, about three times faster than sales, as companies cut costs. Rather than investing to meet demand that might not come, executives juiced returns by spending near record amounts on buybacks.

‘Big Disconnect’

“You can’t do a whole lot more cost cutting and you can’t buy back a whole lot more stock,” David Lafferty, the chief market strategist for Natixis Global Asset Management in Boston, said by phone. His firm manages about $930 billion. “The big disconnect where companies have been able to grow their earnings significantly faster than top-line revenue growth is coming to an end.”

More than $11 trillion has been added to S&P 500 stock values since the bull market began. Over the same period, GDP rose 0.9 percent a quarter amid the weakest recovery since 1947, data compiled by Bloomberg show. The 68-month advance in stocks is unique among 16 bull markets since 1938 in that it occurred without a single year of GDP growth above 3 percent.

One hazard for investors is shown in valuation gauges tied to revenue. Since global equities bottomed in March 2009, the S&P 500’s price-sales ratio has expanded about three times as fast as price-earnings, rising from 0.7 to 1.8 last month, the highest level in more than a decade.

‘Fully Rational’

Stock volatility spurred partly by international concerns may be increasing but the influence of foreign markets is a reason profits have been able to outrun American GDP, according to Stanley Nabi, vice chairman at Silvercrest Asset Management Group in New York. S&P 500 companies get 46.3 percent of sales overseas, according to data from S&P.

“They’re accounted for in the S&P earnings, but they’re not accounted for in the GDP,” Nabi said by phone. Silvercrest oversees about $16 billion. “Profits have risen ahead of nominal growth. It’s fully rational.”

Growth in earnings isn’t poised to end, according to analysts, who say income among S&P 500 companies will rise at an average rate of about 9 percent through 2016, estimates compiled by Bloomberg show. Economic growth has strengthened in the past year, with GDP expanding at an annualized rate of 3.5 percent or more in three of the last four quarters.

3% GDP

GDP probably rose 3 percent in the third quarter and will hold around that level for another two years, according to the median estimates from more than 80 economists surveyed by Bloomberg. Economists predict employers will add 228,000 jobs to payrolls in October after a 248,000 increase in September.

Too much growth is the last thing the economy needs anyway because it may prompt the Fed to raise interest rates sooner than expected, according to Tim Rudderow, chief investment officer at Mount Lucas Management LP in Newtown, Pennsylvania.

“The modest economic growth is a recipe for continued run-up in equity prices,” Rudderow, whose firm oversees $1.6 billion, said by phone. “Once we get a hint that the Fed begins to reconsider their position on interest rates, that’d be the time when the equity market will be more challenged.”

Just as lackluster demand has made company executives hesitant to boost capital investment, their reluctance to spend on new plants and technology in turn held back the economy. CEOs have cut the proportion of cash flow used for capital spending to about 40 percent from more than 50 percent in 2002, data from Barclays Plc show.

Capital Spending

Capital spending may be little changed next year as lower oil prices limit investments by energy producers, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist, who derived the data from more than 670 non-financial companies that the firm’s analysts cover.

“We’re already at a market price that’s greater than what GDP growth can sustain in the next seven to 10 years,” John Allen, chief investment officer at Aspiriant LLC in San Francisco, said in a phone interview. The firm oversees about $8 billion. “Equities will either be choppy or come down.”

After buying stocks indiscriminately in 2013, investors are punishing companies now that fail to deliver growth. International Business Machines Corp. and Coca-Cola Co. tumbled at least 4.3 percent last week amid disappointing sales. IBM (IBM) has spent $19 billion buying back its shares in the past 12 months and Coca-Cola plans to repurchase between $2.5 billion and $3 billion of its stock this year.

Profit Margins

IBM, grappling with an industry shift to cloud computing, reported a 10th straight quarter of revenue declines and abandoned its earnings forecast for 2015. Coca-Cola, the world’s largest beverage maker, missed analysts’ sales estimates and its $3 billion cost-cutting plan failed to satisfy investors.

The boost to earnings from plant closures and layoffs has lessened over the past two years as profit margins near a record 9 percent, data compiled by Bloomberg show. At the same time, buybacks are losing their allure. The S&P 500 Buyback Index is up 7.5 percent this year, compared with the 6.3 percent advance in the S&P 500, after beating it by an average of 9.5 percentage points every year since 2009.

“This past couple of weeks should serve as a good wake-up call for investors that the market going forward is unlikely to be as smooth as it was,” said Leo Grohowski, chief investment officer at New York-based BNY Mellon Wealth Management, which oversees about $187 billion. “The overshoot to the downside of the market has been corrected. With valuations back to fair levels, you’re not going to see this degree of dispersion.”

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Chris Nagi, Jeremy Herron

Special thanks to Bloomberg, CNNMoney, Reuters and Yahoo! Finance for their market summaries. gm

Best Regards,
M.A. Perry
Trader and Founder of WRB Analysis (wide range body/bar analysis)
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