Market Direction Week of December 24, 2018©

Market Direction:BEARISH alert issued 11/23/2018 

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Last Week Review: Stocks suffered the worst weekly loss this year, with most major indices now in correction territory and the Nasdaq in a bear market (down 20% from its peak). The new concerns that emerged this week were fears that the Federal Reserve is raising rates more than the economy can support and a potential government shutdown. We think lack of any major catalysts until the end of the year and low liquidity conditions are also likely to blame for the outsized drop. International developed and emerging markets also declined for the week, but held up better than U.S. stocks. Positively bonds rallied, helping stabilize portfolios. In our opinion Fed policy will remain a key driver of equity markets in 2019 as the Fed negotiates the balance between higher rates, inflation and a healthy but slower-growing economy. More moderate economic growth, in combination with still-low inflation justifies a data-dependent approach, which is what we will likely see in our view. The recent market volatility might be unnerving, but it’s still part of investing.

On Wednesday the largely expected Fed rate hike was met with sharp selling in the markets after the official policy statement was perceived as less “dovish” than expected with regard to further rate hikes in 2019. Separately, after Congress struck a short-term deal on Wednesday (12/19) to keep the government open until early February, President Trump threatened on Thursday (12/20) and Friday (12/21) to veto the spending bill. At the time of this writing the outcome on this issue is still unknown.

The latest development on the Brexit saga was an attack from Prime Minister Theresa May on supporters of a second Brexit referendum. One supporter of that movement was former Prime Minister Tony Blair, whom May accused of undermining her negotiations with the EU and even undermining the integrity of democracy itself. As progress stagnates, government officials are reportedly preparing for “economic calamity” in the event no deal (often called a hard-Brexit) can be reached.

On Thursday (12/20), the U.S. Justice Department accused Chinese officials of engaging in a “decade-long” state-sponsored espionage program to steal American intellectual property. While two prominent Chinese hackers were named in the statement, both currently reside in China and are unlikely to be extradited to the U.S. to face charges. But these actions add to the growing list of hurdles that must be overcome in order for the U.S. and China to forge a new trade agreement by the current 3/1/19 deadline.

How the market finished last week, the S&P 500 down 7.1%, the Nasdaq down 8.4%, and the Dow down 6.9%.

This Week: Few if any of the issues plaguing this market will likely be resolved until well into 2019 and that means this high volatility is likely to be around for a while. While high volatility usually means big moves in both directions, exactly when those moves are likely to happen is extremely difficult to predict. If you intend to trade in this environment it is recommended that you reduce the average share size and dollar amount of your trades.

Many of the indicators look to move in a more bullish direction for next week but these should largely be viewed as very short-term indications, as they are mostly indicating that the market is technically oversold in the very short-term. Long-term though, there are many indications that high volatility will remain for the foreseeable future.

While the week of Christmas is typically a quiet, low-volume week, that seems rather unlikely this year. The consensus of the indicators leads me to believe that we could see a bullish bounce early in the week, but those gains may be very short-lived and the week will likely be very volatile overall. Unfortunately in this environment forecasting whether the week as a whole will be bullish or bearish is a hopeless task.

Economic Calendar: Case-Schiller Home Price Index (12/26), Consumer Confidence (12/27), International Trade (12/28), Wholesale Inventories (12/28)

Some of the major earnings announcements on deck: No earnings this week.

$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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