Market Direction Week of January 7, 2019©

Market Direction:BEARISH alert issued 11/23/2018 

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Last Week Review: Stocks started off 2019 with more turbulence, but finished higher for the holiday-shortened week. The combination of a profit warning from Apple, which cited weakness in China, and a softening in the ISM manufacturing index raised concerns over the impact of slowing global growth to the U.S. economy. However, the strong jobs report released on Friday, along with some trade optimism, eased those concerns. The U.S. economy added 312,000 jobs in December, the most in 10 months, which, in combination with faster wage growth, points to continued support for consumer spending, the biggest driver of U.S economic growth.

On Friday (1/4) House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer said they had told President Trump that they would not consider any funds for the border wall until the government is re-opened. In response, the President said he was willing to keep the government closed for “months or even years”. With this in mind, here is an update where the current shutdown stands relative to previous shutdowns.

In the latest installment on the Brexit saga, UK Prime Minister Theresa May has seemingly made little progress in recent weeks on her discussions with EU leaders. In fact, a recent survey showed most of her own party's members are against the current proposal and would prefer to leave the EU without a deal. This lack of forward movement means the two primary options are a hard Brexit, which will almost certainly result in a broad recession in the UK, or a second referendum, which undermines the authority and credibility of the current government; both undesirable choices.

On Thursday shares of Apple (AAPL) dropped nearly 10% (to their lowest level since 4/19/18), which in-turn erased over 106 points from the Dow Jones Industrials. CEO Tim Cook attributed most of the drop due to lower sales expectations from the economic slowdown in China, caused primarily by the trade/tariff war on which he blames President Trump. China and the U.S. will reportedly have a low-level meeting on trade in Beijing early next week, though no resolution is expected.

Separately, in Japan on Thursday (1/3) a so-called currency “flash-crash” occurred when the yen jumped nearly +4% against the dollar in only a few minutes. This is a substantial move when compared to a gain of just +2.7% for all of 2018. Fortunately, most of that move was reversed within the next hour.

How the market finished last week, the S&P 500 up 1.9%, the Nasdaq up 2.3%, and the Dow up 1.6%.

This Week: With the SPX hovering mid-way between a -10% correction and a -20% bear market, it seems well positioned for an upside or downside breakout soon, but there is little indication that will happen next week. Instead, continued high volatility is likely to remain the only thing we can count on.

Even if you consider yourself a trader, don’t forget to review your portfolio diversification to ensure that you are not overly concentrated in one stock or market sector. Trading in this environment is not typically advised except for those with an extremely high risk tolerance. If you do decide to trade, consider reducing your average share size or dollar amount per trade.

The government is still shut-down, the trade war with China is still ongoing, there is no Brexit deal yet, there is still no word on the Mueller investigation and concerns about Chinese economic growth are growing. Few if any of these concerns are likely to be resolved soon, so high volatility is likely to be around for a while. High volatility usually means big moves in both directions, and that is exactly what we’ve seen lately. On Thursday (1/3) the SPX fell more than 2% but is up more than 3% by Friday close.

Economic Calendar: Factor Orders (1/7) ISM Services Index (1/7), JOLTS (1/8), FOMC Minutes (1/9), Wholesale Inventories (1/10), CPI (1/11)

Some of the major earnings announcements on deck: AYI, BBBY, STZ, LEN, KBH.

$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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