Market Direction Week of March 11, 2019©

Market Direction: BULLISH alert issued 1/10/2019

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Last Week Review: U.S. stocks finished the week lower, with the S&P 500 declining for five straight sessions, but still up 9.1% for the year1. In response to slowing global growth, several world central banks are easing their stances towards rate hikes or taking new measures to boost their economies. The European Central Bank guided for steady rates through the end of 2019, on top of providing additional funding to banks. The Bank of Canada acknowledged it had underestimated the depth of the slowdown, hinting that it will be patient in hiking rates. Also, the Chinese government announced plans to cut taxes, increase loans to small businesses, and boost infrastructure investment in an effort to support growth. As a result of these actions the U.S. dollar strengthened against other currencies, presenting a headwind for the domestic market. The path for equity markets will likely be more difficult for the balance of the year than it has been for the first two months of 2019, but we believe the combination of rising corporate profits and a still-favorable interest rate environment provide a positive backdrop for stocks to continue rising over time.

This week in Brexit news: Experts believe that Prime Minister Theresa May is very unlikely to gain sufficient concessions from EU leaders to garner support from her own Parliament, and EU leaders are very hesitant to present an offer that is doomed for failure. Parliament is scheduled to vote next week but as significant disagreement and finger-pointing continues, the no-deal Brexit remains the default outcome. Delay/extension is another possibility, but the consensus perspective is that EU leaders may only allow it for the purpose of holding a second referendum. The key issue remains the so-called Irish backstop; the no-customs passage between the U.K.’s land and Ireland. The 3/29 deadline is now only 3 weeks away.

Reports continue to come in that President Trump and Chinese President Xi are likely to meet at Trump’s Mar-a-Lago resort later this month, where a new trade agreement is expected to be signed. However, even that may not mean the end of the trade war. Trade Representative Robert Lighthizer said the U.S. will need to keep an eye on China to ensure that they follow through on their commitments before existing tariffs are fully removed, proof of which could take months or even years.

Separately, this week President Trump cancelled joint military drills with South Korea, only days after his meeting in Hanoi Vietnam with North Korean President Kim Jong Un ended without a nuclear disarmament deal.

Option News: After just a week of trading, March aggregate option industry volume is averaging just 20.3M contracts per day. That is above the February level of 18.6M contracts per day but below the March 2018 level of 21.0M contracts per day.

The VIX OIPCR is up 1 tick to 0.25 from 0.24 last week. At this time, VIX options traders are holding (long or short) only 25 puts for every 100 calls. At this level, this ratio is not only well below the 200-day SMA (simple moving average) of 0.34, it is just 1 tick above the 13-month low it hit last week.

The OCC Index VPCR has been moderately bearish this week. Therefore I see it as moderately bearish in the near-term. This ratio has been bearish or moderately bearish in 10 of the past 13 sessions, so I see it as also moderately bearish in the long-term too. How the market finished last week, the S&P 500 down 2.2%, the Nasdaq down 2.5%, and the Dow down 2.2%.

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This Week: Q4 earnings season is essentially over now. With 494 companies (99%) of the S&P 500 reporting so far.

Technical resistance at 2,800 has stymied the SPX for the 4^th time in the last 5 months. And with a lack of potential upside catalysts, downside support may not come until the 50-day and 100-day Simple Moving Averages (SMAs) meet around the 2,680 area.

As you may know, the 10th anniversary of the bull market was (3/9/19) and this is getting a lot of attention in financial media.

For comparison sake, the current bull market has lasted 121 months; way longer than average and the longest ever.

• While the bull market will be 10 years old on 3/9/19, that is only true if the SPX hits another new high before it drops 20% (enters a bear market). Otherwise, the bull market will have ended back on 9/20/18 after “only” 115 months.
• The total SPX gain at the peak (9/20/18) was +333.2%; the current gain is “only” +306.3%. That means for the bull market to continue, the SPX must gain about 182 points (+6.6%) and reach a new all-time high.
• Since WWII, the average bull market has lasted about 5 times longer (62 months vs. 16 months) and has been about 4 times stronger (+165% vs. -34%) than the average bear market.
• The average annual change for bull markets (+16.9%) and bear markets (-16.2%) has been about the same; it’s just that bull markets tend to last a lot longer.

For the markets abroad, key events for the week on the economic calendar include UK GDP, Morrisons, and Prudential and Capita release full-year earnings in the UK. But the main event will be the votes in Parliament on the UK’s Brexit deal.

The Withdrawal Agreement may still not pass, in which case votes on a no-deal scenario and extending Article 50 are expected.

Not very many changes this week, expect the same. The outlook is modestly bearish and volatile again this week.

Economic Calendar: Consumer Price Index (3/12), Producer Price Index (3/13), Industrial Production & Capacity Utilization (3/15), JOLTS (3/15)

Some of the major earnings announcements on deck: DKS, ADBE, AVGO, DG, ULTA.

$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. Building a community of investors one trade at a time. Share with a friend. Cha-ching!

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