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Wednesday, December 19, 2018

Daily update 12/19 History Says the S&P Can Bounce Into the New Year

Many people were expecting a more dovish rate hike then we got.  Powell said they expect to raise rates two times next year instead of three.  However, that was not enough to bring out the buyers.  The sellers took over and SPX broke the Feb. low.

Volume was high on the break down.  I suspect a lot of stops were run today.  Breadth was -70%.  New highs were a whopping 4.  New lows picked up to 787.  More confirmation we are in a bear market.

The futures are extended.  Not much else to say until they do something that looks like a significant bounce.

The market has been oversold for a while now and yet the market refuses to bounce.  That is the hallmark of bear market price action.  If we were still in a bull market the volume pattern around the 10/29 low should have formed a bottom.  On a retest of that low the bulls should have stampeded back in.  That did not happen.  In Daily update 10/1 A Historic Divergence In Stock Market Breadth I wrote "Maybe this is nothing, but the odds another bad bear market is coming are rising."  It looks to me like the last two days have confirmed that.  We are in a bear market.  The market is oversold enough to bounce and seasonality favors that, but there is no guarantee that will happen.  I would not be surprised if a bunch of the bigger hedge funds aren't talking to each other about trying to jump start a rally.  At this point I think it would be hard for SPX to get much above the 200 DMA.

The market commonly does the opposite of what it did on FED day the next trading day.  Sometimes it takes a few days to undo the action of that day.  I really have no idea what happens here.  Today could be a fake out break down.  It would not be all that unusual for the market to run a bunch of stops then reverse.  With this being the tail end of Dec. that might happen.  Just be prepared in case people start panicking over the break of the Feb. low.

FDX mentioned after the close yesterday that global trade is tailing off dramatically.

“Internationally, economic strength seen earlier this year has given way to a slowdown. The peak for global economic growth now appears to be behind us,” said FedEx Chief Communications Officer Raj Subramaniam to analysts on a call. FedEx founder and CEO Fred Smith characterized the U.S. economy as “solid.”

MU had similarly bad comments.

“Smartphone unit demand is also continuing to weaken, particularly at a high end in what is seasonally slow quarter for mobile,” Micron President and CEO Sanjay Mehrota told analysts on a conference call. “As we enter calendar 2019, we are seeing weakening demand from our customers.”

I have been talking about the global economic slow down all year.  The data has now made that obvious to everybody.  That is why the price of oil went tumbling down.  The U.S. economy is starting to show some signs of slowing now.  We live in a tightly coupled global economy these days.  If the entire globe is slowing the U.S. is not going to escape that.  I have been watching ECRI to see if they mentioned their long lead indexes turning back up like they did in 2016.  The last article on Dec. 17 said their indexes were still falling and to expect continued weakness.  This is why we have entered a bear market.  With the ECB ending its QE program and the FED maintaining its QT program global liquidity will continue to contract.  The odds of global economic activity picking up again without global easing seem very low to me.  What are the odds we get easing before things start breaking all around the world?  My guess is pretty low.  Any bounce from here is most likely a rally to sell into.  The leverage in the system is much higher then in 2000 or 2007.  This unwind will likely be worse then either of those bear markets.

Historical look at bad Dec. starts.  History Says the S&P Can Bounce Into the New Year

My apologies I just realized tonight I had not updated the trend table.  It is the season and I have been a little bit busier then usual.  Sorry about that chief.


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