We are supposed to have the wind at our backs about this time of the year, but the markets are persistently spooky.
Is there hope for a rally? Sure says Paradigm Capital analyst Aazan Habib, who says there also may be a little more pain to endure.
In a research update to clients October 29, the analyst assessed the outlook for commodities, fixed income and currencies and equities.
With regard to equities, Habib says we in a “risk-off” environment, but says he is exercising caution.
“Breadth and sentiment (are) entering oversold territory but room to go before extremes; staying cautious until we see evidence of a reversal or capitulation,” he said. “We have been using a breadth model based on the 10-day EMA of the NYSE McClellan Summation Index to guide our view on equities. This model has been in a risk-off configuration since early August, keeping us cautious as we progress through this risk looking for signs of either a sustainable upside reversal or capitulation to become more constructive. There are signs of oversold conditions in certain sentiment/positioning/momentum/breadth indicators, but we are not at levels consistent with capitulation lows.”
The analyst says he is watching support levels of 4050 and then 3800 on the S&P 500 and the 18,000 level on the TSX.
While the emergence of Halloween costumes and candy signal the end of what can sometimes be a frightful month, the analyst still finds it hard to go all-in on optimism.
“Seasonality is supposed to become a tailwind as we approach the November-January period,” he concluded. “After closely following the seasonal composite so far this year, performance has started to diverge as the fall seasonal correction has morphed into a deeper risk-off phase.”
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