The October Washout is Mostly Robo-Driven Algorithm-Based Selling

Excerpt from Louis Navellier's Marketmail - 10/30/2018

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The best way to explain this October’s market action is that the “tail has been wagging the dog.” Due to computerized trading, index arbitrage and ETFs are becoming less liquid due to widening discounts and premiums to their net asset value (NAV). My hope is that economic fundamentals and wave after wave of positive earnings announcements will break that spell and disrupt recent computer index arbitrage selling.

Most robo-traders aren’t looking at the fundamentals. They have programmed their computers to sell on key words in various news releases. Thankfully, trading volume was relatively light early last week, but trading volume rose steadily each day. Since Friday’s sell-off had some high trading volume, I saw some “light at the end of the end of the end of the tunnel,” hoping that Friday might be a capitulation day.

I recorded three podcasts last week. (Here is a link to my Friday podcast.) As I have repeatedly said on many of my podcasts, it is very odd for this selling pressure to be occurring during a bullish quarterly earnings announcement season, especially when the average stock in the S&P 500 (so far) has posted 8.3% annual sales growth and 25.3% annual earnings growth. I was especially happy to see how Boeing (BA) and Twitter(TWTR) reacted after posting better-than-expected sales and earnings while providing positive guidance, and I was especially excited about the huge (86.1%) third-quarter earnings surprise ($5.75 per share vs. a consensus estimate of $3.09) for Amazon.com(AMZN). I am not worried that its sales were slightly below some analyst estimates. Amazon remains a great buying opportunity on dips.

Navellier & Associates holds AMZN, BA & TWTR in managed accounts and a sub-advised mutual fund. Louis Navellier & his family own AMZN, BA & TWTR via the sub-advised mutual fund and holds AMZN in a separate account.


In This Issue of Marketmail (Click Here to Read)

I’ll have more on last week’s market mayhem in my closing column. But first, Bryan Perry argues (with President Trump) that the Fed is out of touch with reality in their public statements, while the economic indicators tell a more positive story. Gary Alexander tells the same story, while debating a recent cover article from The Economist about their premature warnings of America’s “Next Recession.” Then, Ivan Martchev updates his junk bond indicator and then compares this October to 1974, 1929, 2008, and most notably 1987. Jason Bodner looks inside the “machine” (literally) to tell us what computers are doing to this market and how human logic will save us in the end. Then I’ll return to amplify what Jason just said.

Income Mail:  

The Stock Market Says Fed Policy is Overshooting Inflation Risks

          By Bryan Perry

The Numbers Still Support a Healthy Stock Market

  

Growth Mail:  

An October to Remember – or Forget?

           By Gary Alexander

The Economist Predicts “The Next Recession” (When None is in Sight)

  

Global Mail:

Junk Bonds Still “A-Okay”

           By Ivan Martchev

The 1987 Comparison

 

Sector Spotlight:

Computers Made This “An October for the Ages”

           By Jason Bodner

This Market is Now Seriously Oversold

 

A Look Ahead:

When Computers Do Their Thing – Beware of Trading with Them

           By Louis Navellier 

The Bond Market is More Orderly Than Stocks Right Now