Stocks traded impetuously in a narrow range on Monday without much help from the news wires, the economic calendar or earnings reports. Big-cap technology was the only major group that finished with sizeable gains, while almost everything else languished.
The big event later this week will be a meeting of the Federal Reserve’s rate-setting committee. It is not expected to increase rates. Investors will study the bankers’ post-meeting statement, however, to determine the likelihood of a rate hike at the next meeting.
Fed funds futures indicate just a 37% chance of a December rate hike, down from 44% a month ago. But 13 of 17 Fed officials have indicated that they expect a rate hike in 2015, and that would be the last chance to do it. The discrepancy has led observers to speculate that Fed Chair Janet Yellen will have to adopt a stronger tone to persuade markets that a December lift-off is coming (if indeed that is her belief) to avoid a shock. The October statement, for instance, could include a note stating that only a deterioration in the economy in the next two months would prevent an increase. The statement is due at 2 p.m. ET on Wednesday.
One interesting news item that crossed the wires on Monday was the decision by Equity Residential (EQR) to sell 23,300 apartments worth $5.4 billion to Starwood Capital. EQR is run primarily by Sam Zell, who is known as the “grave dancer” for his uncanny ability over the years to buy low and sell high.
EQR said in a statement that it is shifting focus to downtown urban areas while exiting suburban markets. The deal follows some recent cautious commentary regarding the country’s commercial property boom and impending rate increases. The U.S. apartment market in particular has seen rents grow 20% over the past five years. Zell is known for having sold Equity Office Properties to Blackstone Group LP (BX) for $23 billion near the top of the real-estate market in 2007.
In sync with that came news that September new home sales were much weaker than expected, and down from August (which had been revised lower, as was July). The Northeast was the largest driver of the drop. September’s sales rate was the lowest since November 2014. Inventory of new homes for sale rose 4.2% to 225,000, which is the highest level since March 2010. Although this was a disappointing result, reaction in homebuilders’ shares was not terribly negative.
Overseas, we learned that the German Ifo Business Climate Index fell from September for the first decline in four months — but was higher than consensus. Ifo’s economist stated that “the German economy is proving remarkably resilient in view of this autumn’s multiple challenges” and noted that Ifo did not see any impact on the German auto industry from the Volkswagen AG (ADR) (VLKAY) scandal, which is great to hear.
Today’s trade is in Chevron Corporation (CVX), which is among the many energy and chemical producers that appear to have made a bottom.
Alongside Monday’s pullback in oil prices, Chevron nestled into the middle of its Keltner channel, as you can see in the chart above. I expect CVX shares to stabilize here, so this should be a good time to buy.
Buy CVX at $91.50 limit for target $98.80. Set a stop at $85.75 limit, good after 10:30 a.m. ET only.
Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow him on Twitter for his latest take on markets and innovation.
