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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