You’ve Got Mail
Posted on Saturday, October 29th, 2016
Just when I thought I was out. They pull me back in.
– Michael Corleone Godfather III
Was it Michael Corleone or James Comey Director of the FBI? Comey has to be thinking the same as the Godfather as Anthony Weiner’s emails have pulled Comey back into the Clinton investigation and thrown the election and markets for a loop. The S&P 500 was holding support above the 2130 level that we spoke of last week until the explosive news of a reopening of the Clinton email investigation hit the tape on Friday. Markets closed under 2130 for the second time triggering Jeffrey Gundlach’s warning. Monday is going to be a very important day for the short term direction of the market.
Mega mergers are not typically seen as very good for markets. In fact they usually serve as a warning post and signs of a potential top. We were served up with the news of three merger/takeovers last Monday morning. The largest being the ATT Time Warner deal. The AOL Time Warner deal served as the warning bell at the top of the 2000 bull market and the subsequent tech crash. When large companies have squeezed the last drop of growth out of their companies and the business cycle is near the top the playbook calls for buying growth. At the end of the business cycle the only thing left to do is acquire the growth that is not obtainable organically. ATT has recently seen a slowdown in the growth of subscribers. Is this the Hail Mary Pass for ATT? The AOL Time Warner merger is now studied in business classes as the classic failed mega merger. How will history see the ATT Time Warner merger? Better we suspect but sometimes they do ring bells at the top.
As far as the technicals go the 50 Day Moving Average (DMA) on the S&P 500 is now declining. Also, the last two weeks have seen market swoons instead of rallies at the end of the market day. Both serve as warning signs for a tired market. We are entering, which is historically, the best part of the year for stocks. The election and the Federal Reserve may have something to say about that. We are now staring at an election in chaos and a Federal Reserve committee meeting in December where they have all but promised the market that they will raise rates. Will they still raise rates if Trump wins and markets swoon? 2130 is being tested. Pass or fail?
The S&P 500 has now closed below its 100 day moving average for the third straight week. If 2130 fails then the next real level of support is the always critical 200 day moving average at 2078 on the S&P 500.
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.