Historically the first day of October has been down 6 of the past 10 years. After today, that will be 7 of the past 11 years. Investors today remained nervous despite analysts “talking up” Deutsche Bank and the likelihood of no capital problems.
Overall most analyst are looking at Europe as the next place where a down catalyst may appear, especially between the Deutsche Bank issue and the Brexit still to be worked out.
FEZ ETF – Europe Predictor?
The European ETF I follow is FEZ. This ETF follows the total return performance of the EURO STOXX 50® Index which I have found since its introduction in 2002 has been a good predictor at what is happening in major European equities.
At present the ETF is continuing to display a pattern of lower highs but even with Brexit and now Deutsche Bank, the Index has managed to hold above the $32 support level.
In Feb and again in June the index dropped to just below $30 but quickly recovered. At the $30 level the ETF is trading at prices seen in 2012, 4 years ago, so obviously there is some trouble in Europe.
FEZ ETF Chart To Oct 3 2016
Perhaps picking up a few puts at the $30 strike might end up being a decent trade this fall, if the bears are right and the market will “fall apart” this October.
With that typoe of concern it was not unusual today to see investors pulling back from buying stocks but the close below 2150 could be setting the market up for a move back to 2120 from just two weeks ago.
The Oct 28 expiry, $30 put strike is trading for 30 cents while the $31 is at 45 cents. Leaving offers open at 25 cents for the $30 put and $40 cents for the $31 put might just get filled this week for those who think Europe will come unglued.
Auto Sales
Some of the statistics released this morning had investors mulling the market environment. Sales of autos and trucks in September slowed both at GM and Ford. Toyota and Nissan saw overall sales move higher. This was a drop from September of 2015 and is in-line with a pullback in auto and truck sales that started in early summer. Still, numbers were very good even though they show that after 6 years of expansion, auto and trucks sales are a bit softer.
Construction Projects Weakened
Statistics also showed that construction projects weakened in the US in August. July’s numbers were also lowered. In August though, construction sending fell 0.7% which compared unfavorably to projections for a 0.1% increase in spending. Public projects fell 2% in August with July’s numbers being downgraded to a drop of 3.5%. For the first time, spending on public projects is back at March 2014 levels.
Private projects also slipped with residential projects down 0.3% in August.
Wells Fargo Stock (WFC) Continues Its Slide
Wells Fargo Stock fell again on Monday, down 1.02% to close at $43.83. Now well below the $46 support level, the next support is down at $38 which many analysts are calling as the expected bottom to the present decline. Today marked another new 3 year low for the stock which is now trading at level seen in late 2013.
Wells Fargo Stock -Three-Year Chart
News today that Illinois Treasurer enacted a one-year moratorium on Wells Fargo business which effectively suspends $30 billion in investment activity, weighed on the stock. Later news that the Officfe of the Treasurer also was opening an audit to review Wells Fargo proceedings to determine if it complied with Illinois law on returning unclaimed property to consumers, added to the pressure and more states may end up following Illinois’ process. All of this continues to put pressure on Wells Fargo Board of Director to replace its CEO John Stumpf which last week faced many in the House Committee who called for him to resign.
For Wells Fargo Stock, I am holding deep in the money covered calls on stock I have had for many years, as I think upside is limited. As well, I have sold a large number of naked calls for weekly October expiries, from Oct 7 to Oct 28 as I don’t see a lot of upside to the stock and if it did recover, I would buy shares to turn the naked calls into covered calls.
Rumors On Walt Disney Stock (DIS)
Walt Disney stock rumors of a possible bid to acquire Netflix had no comments from either Netflix or Disney. Netflix stock soared over 4% on the rumor though and is now back trading above $100 levels closing today at $102.63.
Disney Stock on the other hand closed down 0.4% at $92.49. The stock continues to under perform this year despite huge box office success earning more than $2 billion to date with its movies. No other movie studio came close to those kind of earnings. Investors though worry about dropping subscribers at ESPN. At $92.49 the stock is still trading above the 52 week low of $86.25.
Investors’ Focus
All of this has been weighing on investors to start off October so the drop in all the indexes today is understandable. The market needs a new catalyst to the upside to break stocks out of the tight trading range it continues to be in. We may see that as earnings start to arrive. Analysts are expecting good quarter for revenue and earnings on average for the S&P stocks. If they fail to meet those expectations, it would be hard to justify stocks remaining at the present height and expensive multiples they continue to trade in.
That too has investors’ worried.
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