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.
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.