Market Direction Week of December 17, 2018©

Market Direction:BEARISH alert issued 11/23/2018 

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Last Week Review: Stocks finished lower for the week, with all major indices (S&P 500, Dow and Nasdaq) in correction territory for the first time since February of 2016. Trade headlines remain front and center. While there were some positive signs of de-escalation in the trade rhetoric, this was offset by continued global growth concerns. Chinese officials signaled changes to economic policies that could increase access for foreign companies and announced China's intent to buy U.S. agricultural products along with cutting the tariff rate on imported U.S. cars. In our view U.S.-China trade tensions are unlikely to be resolved immediately. Although we don’t expect a full-blown trade war, lengthy negotiations mean additional volatility is likely. In the U.S., economic data was encouraging as retail sales grew faster than expected, supported by strong consumer confidence, rising wages and low unemployment. Overall, uncertainty remains and risk appetite appears low at the moment, but strong economic fundamentals and lower valuations support a positive outlook for stocks.

After a heated disagreement in front of the press with House Minority Leader Nancy Pelosi and Senate Minority Leader Chuck Schumer on Tuesday, President Trump has given no ground toward a compromise that would keep parts of the government from being shut-down on December 21. Two key points to keep in mind on this issue:

1. Unlike the last shutdown (1/19 – 1/22/18), this is only a partial shutdown.

2. While past performance is no guarantee of future results, the last 4 government shutdowns have resulted in market gains, not losses.

On Wednesday British Prime Minister Theresa May faced a “no-confidence” vote, but won a decisive 200 to 117 victory. Having survived this vote, she is now safe in her position for at least a year, but she also conceded that she would not run for re-election in 2022. For now though, she must continue to try to get her Brexit deal approved by Parliament, though each day it is looking less and less likely that will happen.

While volatility remains elevated, one factor keeping stocks from further declines has been news reports that China has offered to reduce auto tariffs, scale back its ambitious “Made in China 2025” plans, and begin purchasing American agriculture and energy products.

How the market finished last week, the S&P 500 down 1.3%, the Nasdaq down 0.8%, and the Dow down 1.2%.

This Week: With plenty of downside catalysts ongoing and a few more looming, but few upside catalysts to offset them, the ongoing volatility and pressure to the downside seems likely to continue into the final full trading week of the year.

High volatility usually means big moves in both directions and that has certainly been true over the past several weeks. Looking at closing prices only it would be easy to assume that things calmed down a bit last week, given the biggest move in either direction was a gain of +0.54% on Wednesday (12/12). However, when you look at the intraday range of about 1.8% over the week, it’s clear that there is still plenty of uncertainty to go around.

As you can see below, the vast majority of the indicators moved in a more bearish direction for next week. This is likely due to the increase in the number of volatility related catalysts. All of the following are likely to keep things moving next week:
Positive or negative news/developments in the ongoing trade/tariff dispute with China

• The SPX appears to be in a post-death cross downtrend
• The SPX appears likely to close in correction territory on Friday (12/14)
• Concerns in Europe regarding the Brexit battle, the Italian budget and French riots
• The Fed rate hike which is likely to occur on Wednesday 12/19, but more importantly, what the Fed statement says about future hikes in 2019
• The potential for a partial governments shutdown looming on Friday 12/21
• Upcoming housing market data which is likely to show continued weakness

Economic Calendar: FOMC Rate Decision (12/19), Leading Economic Indicators (12/20), Durable Goods (12/21), GDP (12/21)

Some of the major earnings announcements on deck: ORCL, DRI, FDS, MU, NKE.

$tockMarketDirection proprietary model is currently BEARISH. We strongly encourage you to monitor positions closely, exercise proper money management strategies and follow us at $tockMarketDirection for ALERTS we may issue advising a change in the current market direction. Stay tuned and follow us. If you have a testimonial or comment of how this website has helped you we would like to know, email us. Share with a friend. Cha-ching.

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