Market Direction: BULLISH alert issued 1/10/2019
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Last Week Review: Stocks extended their recent rally with the S&P 500 rising 2.5% for the week, leaving the index less than 6% off its all-time high1. Continued optimism regarding the U.S. - China talks and an agreement to avert a government shutdown provided investors with enough reasons to increase their appetite for risk. Economic news was mixed, with the Bureau of Labor Statistics reporting a surge in job openings, while retail sales and industrial production disappointed. January marked the 10th consecutive month in which there were more job openings than unemployed workers, more evidence of a tight labor market. On the flip side, retail sales slumped in December, falling 1.2% over the prior month, the biggest decline since 2009. This reported softness is in stark contrast with other data that point to strong holiday sales. As the economic cycle matures, we expect a more balanced mix of encouraging and underwhelming economic readings.
Source: Bloomberg
This week in Brexit news: On Thursday (2/14) the UK House of Commons voted against Prime Minister Theresa May’s proposed resolution to the Brexit deadlock, setting up the potential for Parliament to take control of the entire process on February 27. As various parties within Parliament lean toward removing the so-called “no-deal” option, time is running out with the 3/29 deadline a mere 6 weeks away.
The latest round of trade negotiations between U.S. and Chinese trade officials are reportedly either making important progress (according to China) or not going very well (according to the U.S.), as China is unwilling to agree to structural reforms in the Chinese economy, demanded by the U.S. However, Chinese trade officials said negotiations would continue in Washington D.C. next week and President Trump has stated that he is willing to consider a 60-day delay to the increase in tariffs which is scheduled to take effect on March 2. This flexibility on both sides should allow enough time for President Trump and Chinese President Xi to meet in Vietnam in early March, before tariffs increase.
How the market finished last week, the S&P 500 up 2.5%, the Nasdaq up 2.4%, and the Dow up 3.1%.
This Week: Q4 earnings season is winding down now. With 396 companies (79%) of the S&P 500 reporting so far.
A shortened trading week combined with fewer earnings reports, the end of the government shutdown threat, and potential technical resistance, is likely to result in a relatively quiet sideways market next week; time for another pause.
Next week is a 4-day trading week, with a lighter economic calendar and fewer earnings reports, but we probably still won’t see a solution to Brexit, or a new trade agreement with China. However, discussions with China continue and another government shutdown appears to have been averted. And while President Trump has declared a national emergency over the southern border wall issue, legal wrangling is likely to go on for several weeks, so it is unlikely to come into play next week.
There has been a modest improvement in the indicators this week, but the SPX is also likely to encounter some technical resistance around the 2,800 level, where it paused back in mid-October, early-November and mid-December.
Some key news from oversees worth watching including UK unemployment figures, the German ZEW, and IFO surveys.
Economic Calendar: FOMC Minutes (2/20), Durable Goods (2/21), Leading Economic Indicators (2/21)
Some of the major earnings announcements on deck: AAP, FANG, ADI, SEDG, DPZ.
$tockMarketDirection proprietary model is currently BULLISH. 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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