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TRADING THE WEEK: Just Come as You Are

Traders Magazine Online News, September 18, 2017

John D'Antona Jr.

The US equities market continues to invite investors in – a sort of a bring you own cash party.

Despite the backdrop of myriad geopolitical concerns, weather-related natural events and the upcoming Federal Open Market Committee meeting next week, traders remained bullish on a market that just can’t seem to move lower. Few sales were reported by floor traders and one told Traders Magazine that the buy-side remains laden with cash and no where to put it.

“While everybody talks about the market being toppy and keeping a watchful eye on sky-high valuations, no one seems to be selling,’ said one trader. “So, the cash sits on the sidelines. No buying but no selling either.”

Larry Peruzzi, Managing Director International Trading at Mischler Financial Group said that another way to look at this market is that it has entered into a financial state of Nirvana, a state of oblivion to care, pain, or external reality.

“Hurricane Harvey, Hurricane Irma, North Korean missile launches, London train station bombing…no worries, market keeps moving higher,” Peruzzi said. “While Nirvana the Band did finally meet their ultimate demise this market feels as though we have some more records to put in before it’s over, and that does not stink, if fact that ‘Smells like Teen Spirit’.”

Peruzzi recounted last week started with fear of catastrophic damage from Irma but due in part to better preparedness and response time the loss of life and physical property and infrastructure was less than feared and insurance stocks actually rallied on the news.  Also, last Wednesday’s August PPI data was mostly inline but we did see an uptick in August CPI data on Thursday.

“Some concern grew that we were entering an inflationary period in which the Federal Reserve might have to increase the pace of rate hikes,” he continued. “Those concerns were dismissed on last Friday after both August retail sales and August Industrial Production came in weak. This resulted in analysts reducing their estimates for Q3 GDP. We will be closely watching this to see if these misses and reductions in GDP are temporary weather-related issues or if we have a more complex issue here.”

This week the market will get more economic news such as August Housing Starts and Building Permits on Tuesday, August existing home sales on Wednesday but the main focus of the week will be the FOMC meeting and rate decision on Wednesday.

“No one is expecting any change to the 1.25% Fed Fund target so the statements will be toughly combed for indications of future hikes,’ Peruzzi said. “Fed speakers will be in a quiet period ahead of the FOMC meet with Governors Kaplan, George and William then speaking at events on Friday.”

Other traders said that focus also has returned somewhat to the VIX index. After rising to 12.23 on 9/5 the VIX is making another move lower and could breach below 10 next week.

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