• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

Don't Try to Call This a Market Bottom Too Soon

It takes more than just a day's bounce to call it a trend.
By MALEEHA BENGALI
Nov 02, 2018 | 06:21 AM EDT
Stocks quotes in this article: MU, BABA, AMZN, MSFT

As the calendar struck a new month -- yet another marked-to-market opportunity for hedge funds and institutions to show progress to their investors -- the market experienced a vicious rally in all the laggards of October and an underperformance of all the winners of October. It was as though portfolio managers stood on the trading floor in front of the traders holding a mirror in front of their portfolio holdings.

Industrials, materials, financials, emerging markets, China, copper -- all cyclical sectors and asset classes that had been beaten down in October on worries of economic slowdown and liquidations, outperformed the defensive sectors like utilities, consumers and oil that had all outperformed rather well in October. Even stocks in the respective sectors showed such characteristics. A great example is the performance of stocks like Micron Technology (MU) , and Alibaba Group  (BABA)  -- stocks exposed to China that were literally hammered over the past few months, outperformed likes of Amazon (AMZN) and Microsoft (MSFT)  -- quality names that had fared much better in October despite the selloff. There was a clear rotation across the board. Now, the big question is whether this is the start of a new trend, or just a dead cat bounce from extreme oversold levels. (AMZN and FB Action Alerts Plus holdings.)

November 1 is not really like January 1, when traders and funds actually start the year with a 0 on their risk management sheets, so the enthusiasm of this move is surprising. After all, did the worries over economic recession on China slowing down -- the colossal mountain of debt China holds now spiralling out of control, and being unable to protect their FX reserves at a time when dollar is rising with higher interest rates, killing economies as their debt service costs sky rocket -- just vanish?

Showing just how fickle the market is, it all started with the Politburo in China stating on Thursday that they "were looking into measures to support the economy," followed by President Trump claiming that he and President Xi Jinping "had a great conversation and discussed many things, with a heavy emphasis on trade and discussions moving along nicely with meetings being scheduled at the G-20 summit in Argentina."

Voila! That's all it took for traders to scramble over their shorts and chase to buy China-exposed names and sectors. The yuan rallied from 6.97 up to 6.91, as fears of it breaking the 7-level dispersed. It is astonishing how the words of one President can move trillions of dollars more than actual Fed policy makers and central banks. One wonders if the President is running a hedge fund of his own.

There is no doubt that some of these oversold mining/copper and China-exposed names and sectors have been disastrously beaten up over the past few months, but question abound as to what a settlement might look like. Will China readily meet all the demands of the U.S. and succumb to U.S. imperialism? It sounds like a rather tall order, especially given that U.S. debt and corporate profit margin outlook and trade is suffering too. In October, the S&P 500 fell 8% alone! The fact of the matter is that it won't just be "everything is fine, business is normal" agreement. In addition, we still have another week for U.S. mid-term election results, where if the GOP loses their majority, China may not need to give in that much. We have another month before the actual G-20 summit. The data in between will not be getting any prettier until the underlying economy improves.

U.S. nonfarm payrolls will be reported today. Market expects consensus of 190,000 growth in the October jobs report, with the unemployment rate holding at 3.7%. Another nail in the coffin for markets is the U.S. dollar. If this number comes out stronger than expected, rest assure, the dollar will rally, as the Fed will have zero justification to hold back on raising rates, other than to appease Trump and stop his ridiculing on Twitter.

It is tempting to call a bottom to markets day on day, but it takes more than just a day's bounce to call it a trend. The market is torn right now on "buy the dip" or "we are at the start of a new crisis". I personally am in the former camp, but it will not be an easy one-way path. One has to be nimble and survive the day on day volatility to live to fight another day. Fundamentals, fundamentals, fundamentals - this is the only thing that keeps one sane. After these chauvinistic national games end, perhaps we can go back to looking at company balance sheets and investing.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Bengali was long AMZN and MSFT.

TAGS: Currencies | Economic Data | Economy | Emerging Markets | Investing | Stocks

More from Stocks

We're in the Jaws of a Bear Market, Whether You Want to Admit It or Not

James "Rev Shark" DePorre
Sep 26, 2023 4:24 PM EDT

Not even big caps like Microsoft or Apple could save the indexes -- but here's why some bad news could help shake out remaining false hopes.

Treasury Capitulation Is a Necessary Evil

Carley Garner
Sep 26, 2023 3:32 PM EDT

It is clear that interest rates are driving the ship, but that ship could be on the cusp of taking a major turn. If so, we can expect trend changes in other assets.

Williams-Sonoma Stock Jumps After Private Equity Investment

Bruce Kamich
Sep 26, 2023 1:34 PM EDT

Let's see what the charts are telling us now.

An Update on My Top Small-Cap Pick and What It Means for the Overall Market

James "Rev Shark" DePorre
Sep 26, 2023 11:30 AM EDT

The good news is that the corrective action is advancing and opportunities are developing.

Want to Bet That DraftKings Stock Has Rolled Over?

Bruce Kamich
Sep 26, 2023 10:00 AM EDT

Shares of the gambling site have weakened just as the football season gets into full swing.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:20 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Trading in Multiple Time Frames
  • 10:24 AM EDT BRUCE KAMICH

    This Could Get Messy

    A number of key stocks are getting close to import...
  • 01:41 PM EDT CHRIS VERSACE

    Latest AAP Podcast With Helene Meisler!

    Listen in as the Action Alerts PLUS podcast talks ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login