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Tuesday, February 12, 2019

Daily update 2/12 Could 1Q19 Bring Negative Earnings?

Celebrate!  SPX closed above the 200 DMA.

Not to rain on your parade, but the last three times SPX closed above the 200 SMA it turned around and went back below.  Breadth was +72%.  New highs were 93 which was lower than the 124 we saw back at the end of Jan.  This is the last target for this rally.

The futures tacked on 12 points from the previous rally high.  The question is whether they can hold on to those gains.

The green count climbed back above 50, but is below overbought levels.  There is more room to run if the bulls desire.  There the chance this chart is showing a triple negative divergence with the prior price peaks.  That will be important if the market rolls over soon.

News overnight of an agreement on the budget in DC sent the futures higher.  During the day there was talk about moving out the March 1 deadline with China if negotiations are going well.  Both of those news events were enough to propel SPX above the 200 DMA.  After a big sell off well below the 200 like we had in Dec. the first test of the 200 almost always is met with selling.  I see no reason it will be different this time.  It will be interesting to see how the retest of the low unfolds.

I have seen a number of articles proclaiming the strong breadth readings we have had on this rally mean the Dec. low is the bottom.  Maybe, but maybe not.  This is the third year of the presidential term and it was widely broadcast that those years usually see a 20% or more gain.  I think that is why the breadth has been so strong.  Historically the market has not sold off like last Dec. since 1931.  None of those cases that everybody is pointing out that indicate the bottom is in did not have a bottom in Dec.  Keep that in mind.  This time it may work out differently.  People are rushing in because the U.S. economy is still going fine.  The problem is global weakness though.  There is trouble in Europe, Japan, and China all at the same time.  The U.S. is a little ragged around the edges.  The risks of a global recession are the highest since 2008-9.  The global economy is so tied together the U.S. will not be able to stay strong if there is a global recession going on.

Due to the obvious and serious risks I will wait until I see a clear technical sign the worst is over before suggesting the market has bottomed.  I do not have that at this time.

Interesting article on earnings expectations.  No Quarter: Could 1Q19 Bring Negative Earnings?


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