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Stocks: The Bears Regain Control Off a Series of Bearish Issues

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Chart-595Global equity markets were mostly lower during the overnight, with the Japanese Nikkei, All Ordinaries and MICEX managing to post minimal gains. A fresh high in the Dollar and fears of an impending US rate hike have left equities off balance and many commodities weaker to start the new trading week. The US economic calendar begins with an October Chicago Fed national activity index. Private industry data on US manufacturing PMI for November is forecast fractionally lower than the 54.0 print in October. The next US data window presents October existing home sales figures which are expected to have down ticked from the 5.55 million annualized rate in September. The US Treasury conducts a $26-billion 2-Year Note auction around mid-session, and could garner interest following a 7-basis point increase in yields from the October auction yield of 0.824%. US corporate earnings are expected from GameStop and Tyson Foods ahead of the Wall Street opening.

S&P 500: A reversal to start this morning has taken place despite some positive spin from US earnings late last week. In the short term lingering terrorism concerns, expectations of slack US data and ongoing weakness in commodities presents a negative picture to start the new trading week. Tempering the negative environment is somewhat better than expected Euro zone business growth figures and growing talk that the US Fed might be prevented from hiking rates because of the rise of headwinds off a terrorism wave. The Commitments of Traders Futures and Options report as of November 17th for S&P 500 Stock Index showed the Non-Commercial and Non-reportable combined traders held a net long position of 2,640 contracts and similar positioning in the E-Mini S&P suggests that the stock market measures are vulnerable to more liquidation.

Other US Indexes: Despite a pattern of higher lows at the end of last week, bullish sentiment seems to be reversed to start the new trading week. In order to throw off modest bear tilt probably requires something positive from holiday sales and or US data that definitively reduces US December rate hike fears. Unfortunately data that reduces rate hike fears might also suggest that valuations are too high. The Commitments of Traders Futures and Options report as of November 17th for Dow Jones Index $5 showed the Non-Commercial and Non-reportable combined traders held a net long position of 14,624 contracts. A reversal in the December Nasdaq Mini to start puts profit taking in a front and center position but the prospect of positive holiday sales is at least partially countervailing the negative international influence on stocks. The Commitments of Traders Futures and Options report as of November 17th for Nasdaq Mini showed the Non-Commercial and Non-reportable combined traders held a net long position of 77,841 contracts.

TODAY’S MARKET IDEAS: While the bear camp looks to have control to start today we don’t see high anxiety from the lingering terrorism threat. However, weakness in physical commodities is seemingly translating into a negative to start the new trading week as that in turn is rekindling pressure on resource related shares. Mining share weakness is also compounded by fresh weakness in the oil patch and that combination looks to countervail any optimism from positive initial holiday sales talk. Perhaps the biggest negative for US equities is their relative proximity to the 2015 highs especially with looming international headwinds, rate hike fears and the patently negative signal from sharp declines in physical commodities as many see weak commodities as confirmation of additional slowing in the global economy. Initial downside targeting in the December Mini-S&P is seen at 2076 and then at 2075.25.

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