Bear Bull 2

Week Ahead: Trifecta Of Data Boosts The Market Higher

Trifecta Of Data Boosts The Market Higher:

The market ended higher last week helped by a trifecta of positive data: The Fed, earnings, and economic data. The big move came from the Federal Reserve, after it said it will pause and not raise rates in the foreseeable future. That is a BIG shift from the Fed’s stance in October 2018 which sent the market diving 20% in a few weeks. After that big sell-off the Fed did a 180 and has now shifted back to an easy money stance. Remember, the market is very sensitive to easy money and that has been one of the primary catalysts for this entire 10-year bull market. Stocks also rallied nicely on a slew of positive reactions to earnings and economic data. For now, near-term resistance is the 200 DMA line for the major indices and then 2018’s high. Separately, near-term support is the 50 DMA line and then 2018’s low.

Monday-Wednesday’s Action:

On Monday, stocks fell more than 200 points after shares of Caterpillar and Nvidia plunged on earnings and weak guidance. Caterpillar’s stock fell hard after the company reported earnings. Separately, shares of Nvidia plunged after the company lowered guidance and warned of a weak quarter. Stocks were quiet on Tuesday as investors digested the latest round of earnings and waited for Apple to report after the close. Apple rallied after reporting earnings and this was a classic case where the tech giant lowered guidance before announcing numbers. If the company didn’t lower guidance significantly, it would have been a big miss. Wednesday was a big day on Wall Street as the market soared after the Fed said it will be patient and not raise rates again in the near future. That was a complete shift from what the Fed said in October (it would continue raising rates) and that comment sent stocks plunging 20% before bottoming on December 24, 2018. This lesson reiterates the importance of paying attention to the Fed. After Wednesday’s close, Facebook gapped up after reporting numbers.   

Thursday & Friday Action:
Thursday was the last day of the month and January 2019 was the strongest January since 1987. That could be a good thing or a bad thing depending on what happens later this year. Remember, the stock market crashed in October 1987 and lost over 22% in one day! Let’s hope that doesn’t happen again. Before Friday’s open, the Labor Department said US employers added 304,000 jobs last month (despite the government shutdown) which easily beat estimates. That was a very strong report and signaled continued economic strength. 

Market Outlook: Market Rally Continues 
The market has turned around after the Fed reversed its stance and moved back into the easy money camp. Near-term resistance is the 200 DMA line for the major indices and then 2018’s high. Separately, near-term support is the 50 DMA line and then 2018’s low. As always, keep your losses small and never argue

Week Ahead: Global Central Banks Juice Stocks…Again

Global Central Banks Juice Stocks – Again:

The market opened lower last week but closed mixed to higher after the Federal Reserve and the European Central Bank (ECB) made it abundantly clear that easy money is here to stay for the foreseeable future. The big bullish change is that the Fed put (which means the Fed will step in to help the market when it gets in trouble), is alive and well. Since the Great Recession, every time the market fell 10% or so, the Fed, and other central banks, would step in and announce more easy money. In October 2018, the Fed tried to shift its stance but the market quickly plunged 20% before the Fed blinked and reversed back to an easy money stance. For now, the market continues to react well to that easy money and as long as it continues to act well, the bulls are getting stronger. Near term, the 50 DMA line is support and the 200 DMA line is resistance. Longer-term, December 2018’s low is major support and 2018’s high is major resistance. The fact that the market refuses to fall is very bullish and, as long as that continues, it should be respected. To be clear, if the market starts falling again, and ignores all the easy money, then we will be in for a very ugly bear market. 

Monday-Wednesday’s Action:

On Monday, global stock markets ended mixed as the U.S., stock market was closed in observance of the MLK holiday. China said its economy grew +6.6% in 2018 which was the lowest rate in 28 years. Separately, the IMF cut its forecast for global growth to 3.5% in 2019 and 3.6 percent for 2020. On Tuesday, when markets reopened in the U.S., stocks fell hard as global economic growth concerns spooked investors. But the bulls showed up right near important support (50 DMA line) and defended it by the close. On Wednesday, stocks opened higher, after IBM, Comcast, and a handful of other companies reported earnings. But sellers showed up after the open and stocks fell into the red for the day before a late day rally helped the market close mostly higher. Stocks ended mixed on Thursday as investors digested the latest round of earnings and digested the recent (and robust) rally.

Thursday & Friday Action:
Before Thursday’s open, the European Central Bank (ECB) said that easy money is here to stay for the foreseeable future but that was not enough to send stocks higher as the market ended mixed. In D.C., the government shutdown continued which is a drag on the economy but it was resolved on Friday after Trump opened it up until Feb 15, 2019. Stocks soared on Friday after the Fed announced that it is open to scaling back its program to reduce its balance sheet. That is another way of them shifting back to an easy money stance. 

Market Outlook: Market Rally Continues 
The bulls are doing their best to rescue the market from falling any further. The market was extremely oversold and is currently bouncing to help work off that oversold condition. Resistance is the 200 DMA line for the major indices. After that, the next big level of resistance to watch is 2018’s high. Meanwhile, support is December 2018’s low. As always, keep your losses small and never argue with the tape.

Week Ahead: Stocks Trim Monthly Losses As 2018 Comes To An End

Stocks Trim Monthly Losses As 2018 Comes To An End:

The market is deeply oversold and trying to bounce as 2018 comes to an end. 2018 will go down in history as a crummy year for Wall Street. The year began with a strong rally as 2017’s record run continued into January 2018. Then, out of nowhere, sellers showed up in February and the market quickly fell into a correction. That was short-lived as the bulls showed up and spent the next 6-8 months sending stocks to fresh record highs. Then, in August-September, the major indices topped out and stocks plunged into a new bear market in the fourth quarter of 2018. In fact, December was on track to be one of the worst December’s since the Great Depression (until the plunge protection team was called in to help on Christmas Eve). Remember, the last week of the year has a very strong upward bias. The big question is what will happen in January. Unless, we see a massive change in either monetary or fiscal policy, odds favor lower prices will follow. Conversely, if we get clarity on any of the big issues that has been weighing on the market this could be a very shallow and short-lived bear market. Until then, this appears to be another violent bounce in a bear market. 

Monday-Wednesday Action:
On Monday, stocks plunged again as investors continued to aggressively dump stocks. Treasury Secretary Mnuchin called the CEOs of major banks to shore up confidence as sellers continued to pound stocks. The last full trading week of 2018 was the largest weekly decline for Wall Street since 2008! The Russell 2000 and the Nasdaq Composite both fell into bear market territory and that clearly is spooking major investors. Stocks were closed on Tuesday for Christmas. Not surprisingly, one day after Mnuchin called the Plunge Protection Team, the Dow soared 1,000 points! That is not an insignificant sum and it was the largest single day advance since the financial crisis. Remember, the biggest up moves occur during bear markets so it is not surprising to see the market rip higher as we enter the early stages of this bear market.

Thursday & Friday Action:
On Thursday, stocks opened sharply lower and fell over 600 points before another late day reversal appeared out of nowhere and sent the market closing up over 200 points. That ladies and gentlemen is the definition of the plunge protection team. In the short term, clearly the call Mnuchin made on Monday is working. The only question now is how long will this little rally attempt last? Remember, stocks are extremely oversold and way over due to bounce. Next week is another shortened holiday week and the real test will be to see how stocks act in January, because historically, December has an upward bias, but January can go either way. 

Market Outlook: Flirting With A New Bear Market
Stocks are forming a big top and are beginning to roll over and officially hit bear market territory. Resistance is the 200 and 50 DMA lines & then 2018’s high. As always, keep your losses small and never argue with the tape.

Week-In-Review: Stocks Plunge On Shortened Holiday Week

Bear Market Is Coming…

The market action is deteriorating rapidly, and we are getting very close to bear market territory for the Nasdaq 100 and the Russell 2000. From their recent highs to the recent lows, both indices fell over 16% which is not healthy, considering it happened in a few short weeks. The typical definition of a bear market is a decline of 20% from a 52-week high, so another few “down days” could easily trigger a bear market for these indices. Separately, the Dow Jones Industrial Average and the S&P 500 are both in “correction” territory, defined by a decline of 10-19% decline from a 52-week high. Under the surface, the action is going from bad to worse. The FAANG stocks are all in bear market territory except for Alphabet which is in correction territory. Furthermore, Facebook and Netflix are both down close to 40% which is not an insignificant sum. Other important areas of the market such as Housing, Financials, Industrials, and Technology (just to name a few) are all in correction or bear market territory. The big problem is that we are not seeing new leadership emerge. Stepping back, the fundamental case for stocks is weakening as the global economy is slowing down and global Central Banks are tightening. Additionally, the technical case is weakening as well as we are forming a big top and the major indices erased their entire 2018 gains in the last few weeks. Unless we see a bullish pixie dust show up, odds favor this will turn into a big top and we will enter a bear market in the near future. The big level of support to watch is February’s low. 

Monday-Wednesday Action:

Stocks fell hard on Monday after a slew of tech stocks fell and Vice President Mike Pence said in a speech Sunday that the US would continue with its tariffs until Beijing changed its ways. Currently, the U.S. imposed $250 billion worth of tariffs on Chinese goods and that has led many people to worry that the trade war will adversely impact the global economy. Stocks fell hard on Tuesday, dragged lower by tech, retail and financials. Target’s stock was crushed after the retailer reported earnings. Target slid over -10% after reporting weaker-than-expected earnings for Q3 and reported weak same-store sales. This added to concern that the economy is slowing and may fall into a recession in early 2019. Stocks bounced on Wednesday from deeply oversold levels. The bounce was feeble at best.

Thursday & Friday Action:

Stocks were closed on Thursday in observance of the Thanksgiving Day Holiday. Stocks closed early on Black Friday as a sea of consumers went shopping.  

Market Outlook: Stocks Under Pressure

The market is weak as the major indices struggle for direction. Stepping back volatility has picked up and that normally is not a good sign- especially after a 10 year bull market. At the end of September, I noted that the Russell 2000 broke below important support and said it should be watched closely. One week later, we saw a big sell-off on Wall Street as rates spiked. Right now, the next big levels of support to watch are October’s low and then February’s low. Meanwhile resistance is the 50 and 200 DMA lines, then 2018’s high.  As always, keep your losses small and never argue with the tape. 

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