Major averages fell Friday on higher volume, further consolidating prior gains, but the action among individual stocks remains mixed. For every stock gapping up on earnings others are blowing apart, such as Chipotle Mexican Grill (CME), which will gap down again this morning after announcing over 40 stores being close due to e. coli infections. European stock markets are trading higher after positive economic news on factory activity. Meanwhile, China's manufacturing activity contracted once again for the eighth straight month in October sending markets in Asia lower.
With central banks continuing to ease monetary policy, markets remain on their QE morphine drip. As we explained on Thursday of last week, economies have never been more connected thus central banks must generally move together when it comes to easy monetary policy. So while US and UK central bank officials may warn of impending rate hikes, this is most likely political jawboning. Expect rates to stay near zero well beyond what central bank officials say, though a token 25 basis point hike would not be surprising which would allow the Federal Reserve to stay closer to script of their claim that a rate hike would occur before the end of this year.
While a number of actionable buy signals in the form of pocket pivots and buyable gap-ups have been seen during earnings season, progress has remained tepid for the most part. Thus this does not come across as a market where big money is being made, despite, the sustained rally throughout October. Either it is slow in developing, or it will remain slow as uncertainty over the Fed's next move dominates, putting the market in a position of reacting to economic news as the December Fed meeting approaches. Meanwhile, investors who elect to test the waters on the long side should simply understand where their stops are, and act on that basis for now.
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