Market Direction Week of December 31, 2018©

Market Direction:BEARISH alert issued 11/23/2018 

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Last Week Review: Historically, the last holiday-shortened week of the year has been muted and uneventful, but that was far from how markets traded this week. Extreme volatility continued, with stocks finishing higher and breaking a three-week losing streak. Monday marked the worst Christmas Eve for the Dow in its history, and the S&P 500 flirted with a bear market (down 20% from its peak). Losses then reversed to gains the following business day, as oversold conditions and positive reports about consumer spending for the holiday shopping season led to stocks posting their best percentage gain since March of 2009. We believe the recent price swings are likely exaggerated by low volumes and liquidity during the holiday season. A lot of uncertainties remain, including the Federal Reserve rate policy, the global growth slowdown, and trade tensions, but economic and corporate fundamentals are still solid.

The CBOE Volatility Index (VIX) spiked to a new 10-month high during the abbreviated Christmas Eve trading session, although on thin volumes. Trading volumes picked up again later in the week but remained muted compared with the price swings in the indexes. The Dow swung by 1,186 points on Wednesday and recorded its first one-day 1,000-point gain in history (and its largest percentage gain since 2009).

Mnuchin also attempted over the weekend to dispel rumors that President Donald Trump was exploring the possibility of replacing his recently appointed Federal Reserve Chairman, Jerome Powell, who has drawn the ire of the president for continuing to hike interest rates. Some observers questioned whether Mnuchin was really speaking for the White House, however, and President Trump seemed to add to market worries on Monday by sending out another tweet criticizing the Fed’s actions.

How the market finished last week, the S&P 500 up 2.9%, the Nasdaq up 4.0%, and the Dow up 2.7%.

This Week: The usual quiet two weeks over Christmas and New Year will make life quite dull for economic and corporate calendar watchers.

However, some big numbers such as non-farms, China data and UK purchasing manager indices (PMIs) do appear.

Of course, the stock market will need more than just a few blockbuster IPOs to get back on track. The surest signs will not come from the IPO market or Washington but the stock market itself.

Investors need to watch daily how the major stock market indexes are acting, which sectors are rebounding and which stocks form good bases. Just like the market signals its tops, it will also signal when it's reaching a bottom and may do so even when all the news seems to be negative.

Keep an eye on stocks with good earnings and sales growth that are performing better than the overall stock market. Such stocks could become the early leaders in the next upturn and go on to big gains.

Economic Calendar: MBA Mortgage Applications (1/2) ISM Manufacturing (1/3), Employment Report (1/4)

Some of the major earnings announcements on deck: RECN, CALM, RPM, GBX.

$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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