Ebola Hype, The V-Bottom & Why October Was A Busy Month For The Markets
The S&P 500 fell more than 5 percent between October 1 and October 15. In the time since, the market has risen nearly 7 percentage points.
Was Ebola-driven hype one reason for the decline? Jim Cramer sure thinks so.
On October 16's show, Cramer echoed this sentiment when he stated Ebola fears contributed a “huge amount” to the U.S. stock market's decline over the previous weeks.
He went on to point out: “We're having a lot of companies report really great quarters and no one cares... And I think that has a lot to do with Ebola and less to do with fact that interest rates went down below 2 percent.”
As technicians would put it, a V-bottom is a type of chart action exemplified by a steep decline in price before a steep recovery. Marketfy Mavens Dave and Donald Moenning recently explored the issue, in fact.
The formation may be bullish, but with the possibility of another steep decline existing, many traders who adhere to the philosophy could be reluctant to participate in the present market environment.
Although volume spiked in the December S&P 500 index futures contract on October 15 and 16, there was no significant change in the open interest in the contract. In other words, no large players were willing to initiate new long positions on the decline.
In addition, it appears -- theoretically speaking -- that some shorts pressed their bets as the market rebounded and paused.
Dennis Dick, CFA and co-host of Benzinga's PreMarket Prep, observed the action: "Any trader shorting stocks during the Ebola fears are significantly under water. There hasn't been a significant pullback since the Ebola low on October 15th, and the shorts continue to be squeezed... investors who panicked during the lows and sold are now scrambling to buy any pullback."
Funds And The End Of QE
So, what are funds doing?
If the rallies of the last few trading sessions are any indication, a segment of money managers is looking to reenter the market to avoid falling behind the benchmarks. The recent termination of quantitative easing adds a bit more uncertainty to the mix.
Despite it being known for quite some time that QE would likely end in October, comments from one Fed official made a delay appear possible.
On October 16, Federal Reserve Bank of St. Louis President James Bullard publicly stated he would consider continuing the bond program through October. In his opinion, the bank may need to extend its bond-buying program to keep its policy options open, especially given falling U.S. inflation.
“It would keep the program alive,” he said on Bloomberg TV.
After last week's announcement, though, it appears that the Federal Reserve Board is confident in its expectations for inflation, as well for the pace of economic growth. If not, QE would have likely been extended further.
What's This Week?
Last Thursday's buying spree spilled over into Friday's session, as the Bank of Japan made a surprising announcement of its own version of QE. It was also revealed that Japan's $1.2 trillion pension fund was going to reduce its allocation into bonds while increasing its investment in stocks.
On the earnings front, releases this week include American International Group, Alibaba, Priceline, Walt Disney and Humana, along with several others.
The most recent data on the U.S. jobs market will also be released this coming Friday. Given the Fed's recent actions, many are expecting the current downtrend in unemployment to continue.
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