Market Direction Week of January 15, 2018©

Market Direction: BULLISH alert issued 9/21/2017

Stock on the Radar (STAR)© was launched 6/19/2017 Sunday evening. When there is a new stock recommendations for the week it is typically made available late Sunday, so investors can prepare to take a position when the market opens Monday for trading.

Last Week Review: Stocks provided solid gains for the second week in a row, bringing returns above 4% year-to-date. While investors saw U.S. markets post weekly gains of more than 1% 10 times in 2017, markets have achieved this twice to begin the new year. Additionally, U.S. stocks have not recorded two consecutive weeks of 1% returns since July 2016. This week also marked the start of the fourth quarter's earnings season. Earnings reports can prompt volatility in individual stocks.

This week in Europe we learned that Germany’s industrial production jumped by the highest percentage since 2011. That, combined with an ever-growing trade surplus, is beginning to create problems with their largest trading partners. On the plus side, after 4 months of uncertainty, German Chancellor Angela Merkel finally reached an agreement with the Social Democrats to form a new government.

Separately, European bond yields rose after ECB (European Central Bank) President Mario Draghi said on Thursday (1/11) that he might begin to taper the bond-buying program sooner than many people expect.

Interest rates on US Treasuries rose to 10-month highs on Tuesday (1/9) after the BOJ (Bank of Japan) reduced the amount of its bond purchases by 5%. Then the market was rattled again on Wednesday (1/10) after reports surfaced that Chinese officials had recommended reducing or stopping purchases of U.S. Treasury debt altogether. Rates eased a little on Thursday after Chinese officials cited Wednesday’s report as “fake news”.

Separately, the Chinese government has recently shut down some cryptocurrency exchanges, and this week is threatening to halt some bitcoin mining operations. At the same time the South Korean government said it is preparing a bill to ban the trading of cryptocurrencies on exchanges. Globally, China is the largest bitcoin miner in the world and as much as 20% of all cryptocurrency trading is done in South Korea, so these types of government actions could present a global systemic risk to all cryptocurrencies.

How the market finished last week, the S&P 500 up 1.6%, the Nasdaq up 1.7%, and the Dow up 2.0%.

This Week: 2018 has been an amazingly bullish year so far with SPX gains of nearly +4% in just the first 2 weeks. And while things are beginning to look a bit frothy by some measures, dip buyers continue to step in following even the most modest of pauses. Indications are that pattern is likely to continue in the near-term.

US earnings and UK trading statements dominate the week, with the US financial sector and IBM some of the big ones to watch for. In the UK, miners, retailers and a host of others update the market.
Economic data is sparser, but we do have a rate decision from the Bank of Canada, China gross domestic product (GDP), UK consumer price index (CPI) and retail sales.

Economic Calendar: Empire State Mfg Survey (1/16), Industrial Production (1/17), Philadelphia Fed Business Outlook Survey (1/18), Consumer Sentiment (1/19)

Some of the major earnings announcements on deck: CSX, UNH, SCHW, ASML, BAC.

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