Evan Guido's Weekly Market Notes: Volatility Expected to Continue

Unstable economic and geopolitical conditions continue to cause volatility to soar in global equity, commodity and currency markets. Last week the Dow Industrials and S&P 500 indices lost more than 3.0% despite economic reports that show the U.S. economy has not been impacted by the troubles experienced overseas.

The August Employment report showed signs of strength. The unemployment rate fell and average hourly earnings were better than expected. Auto sales continue at a high level and mortgage applications are up 20% year-over-year. The fact that the U.S. economy is stable and growing makes it less likely that the correction turns into a bear market.

In addition to the turmoil in China, the decline in stock values since mid-August can be tied to uncertainty over monetary policy. The Fed meets next week. The gain in average earnings and hours worked, as reported in Friday’s payrolls report, may give the Fed enough proof of improvement in the labor market to raise rates.

Entering the new week stocks are extremely oversold. Only 10% of NYSE issues are trading above their 10- week and 30-week moving averages. Indicators of investor sentiment show that fear levels are rising and combined with an oversold market there is the strong likelihood of a short-term rally.

The technical indicators for the stock market moved from yellow to red in mid-August. Before we can be confident that a sustainable rally is forthcoming it is required that we see improvement in the breadth of the market. Currently only 32% of industry groups within the S&P 500 are in defined uptrends. We would like to see this climb above 50% before the light would turn green.

At a good market low we should begin to witness the formation of some positive divergences. This would include fewer issues hitting new 52-week lows, rising volume on rallies and reduced volume on pull backs. Over the near-term the stock market will continue in a test/consolidation phase with the risk to 1865 using the S&P 500 and the reward to 1990.

** Denotes Current Relative Strength-Based Overweight Sectors ** 1 ranking = strongest sector - 10=ranking weakest sector

Got Questions? Ask Guido

Evan R. Guido

Senior Vice President, The Evan Guido Group, Retirement Planning & Portfolio Management

Two North Tamiami Trail

Sarasota, FL 34236-4702

941-906-2829 Direct Line

888 366-6603 Toll Free

941 366-6193 Fax

EVANGUIDOGROUP.com