Despite a bout of selling Tuesday, this was a good week for stock market bulls. Indexes entered the week extremely overbought and one day of selling followed by two modest gains Wednesday & Thursday helped work off some of that situation. Then another solid rally happened Friday. With the central bank back back onside and in rah rah mode, all issues that concern people seem to have disappeared…
Meanwhile, Commerce Secretary Wilbur Ross told CNBC that the U.S. is “miles and miles” away from a trade deal with China. The comments added to rising concerns on Wall Street that the trade standoff won’t be resolved before March, when the president has promised to raise the current 10% tariff on more than $200 billion in Chinese imports to 25%, if a deal cannot be reached.
“After a sharp recovery from their December lows, global equity markets are struggling for direction this week. If you’re in the bullish camp, the U.S. earning season may support your views…If you are on the other side of the camp, there is a lot of news supporting bearish views,” said Hussein Sayed, chief market strategist at FXTM. “Slowing global economic growth, the unresolved U.S.-China trade conflict… and Brexit drama are all sources of uncertainty dragging at sentiment,” he said.
The housing market continues to slow so it will be interesting to see with the Federal Reserve “patient” how a stall in mortgage rates (or even fall) may change things — or not.
Existing-home sales ran at a seasonally adjusted annual rate of 4.99 million in December, the National Association of Realtors said Tuesday. That was the lowest since November 2015. Sales were down 6.4% for the month, and 10.3% lower than the year-ago rate. In December, home showings were 7.2% lower than a year ago, the fifth straight month of yearly declines, according to a report from ShowingTime. The full year sales tally for 2018, 5.34 million, made it the worst year since 2015.
For the week the S&P 500 gained 0.2% and the NASDAQ 0.1%.
Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski.
The week ahead…
The shutdown is “done” for a few weeks anyhow, and markets can focus on the Federal Reserve sitting on the sidelines and cheering (“patience!”), and major earning reports from the likes of Apple, Amazon, Facebook etc.
The Federal Open Market Committee will convene its two day meeting on Tuesday with the market largely expecting the central bank to hold steady on rates. However, it’s not the action so much but the message that investors will be focusing on. “Since the Fed’s December meeting, comments from Powell and other Fed members have served to reassure investors,” reiterating that further rate increases will be “data-dependent” and that policy makers are willing to be “patient and flexible,” said Mark Haefele, chief investment officer for UBS Global Wealth Management, in a note.
Ellen Zentner, an economist at Morgan Stanley, expects the Fed to replace “gradual” with “patience” in its statement and reinforce the message that it will remain flexible and adjust its policy as economic conditions warrant.
Short term: Very similar charts right now for both indexes. Well under their 200 day moving averages, but that “V” that bears have been smacked around with for years every time the Fed came to the markets defense looks to be formed again. That said a week of true consolidation wouldn’t hurt here.
Unlike 2018, the Russell 2000 seems to be patterning itself pretty closely to the S&P 500 and NASDAQ of late.
The NYSE McClellan Oscillator remains in extremely overbought conditions for 3rd recap in a row. The action Tuesday through Thursday only brought it down to areas it normally PEAKS. A very unusual period for sure.
Long term: The “V” is on…
Charts of interest / Big Movers:
Tuesday, Stanley Black & Decker (SWK) skidded 16% after the firm gave disappointing guidance for 2019.
Wednesday, International Business Machines (IBM) jumped 8.5% after the management issued a bullish outlook for profits. Again, I just love chart reading for episodes like this when a stock tops out exactly at the 200 day moving average. Without the “squiggly lines” one would assume stopping at the mid $130s was just a random event.
The roller coaster of the past few weeks continued for PG&E (PCG) as it soared 75% Thursday after California’s fire protection department said the October 2017 Tubbs fire in Northern California was caused by a “private electrical system” adjacent to a home but did not “identify any violations of state law” or code related to the cause of the fire. PG&E had announced last week it was planning to file for bankruptcy due to more than $30 billion in wildfire-related liabilities.
Semiconductor firm Xilinx (XLNX) surged 18% Thursday after investors responded favorably to its fourth-quarter results.
Intel (INTC) fell 5.5% Friday after it broke ranks with an upbeat string of semiconductor earnings this week, posting a revenue miss and a weak outlook.
Have a great week and we’ll see you back here Sunday!