Market Direction: BULLISH alert issued 1/10/2019
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Last Week Review: Stocks reversed last week's losses, with major global markets reaching a four-month high. Encouraging economic data, in combination with little signs of accelerating inflation, provide a good backdrop for central banks to continue their accommodative stance. The Chinese government made renewed pledges to support the economy as it slows, while the U.K. voted to extend the Brexit deadline. Headlines around Brexit and trade negotiations will persist in the coming weeks, but the market will likely filter the noise. As the bull market (S&P 500) is celebrating its 10th year anniversary, we think it has room to continue, but a recalibration of expectations is prudent.
This week in Brexit news: Prime Minister Theresa May’s latest Brexit deal was resoundingly rejected in Parliament on Tuesday (3/12), confirming the long-held view of EU leaders that even the UK doesn’t know what it wants. On Wednesday (3/13) Members of Parliament voted to remove the “no-deal” Brexit from consideration, though this was a non-binding vote unless it is approved by the other EU members. Then on Thursday (3/14) U.K. lawmakers voted to delay the Brexit deadline by 3 months. However, that measure must also be approved by all 27 EU governments before it takes effect.
Early in the week, U.S. Trade Representative Robert Lighthizer said that trade talks with China are making progress with both sides working on a few “final hurdles”. Later in the week he said there were still some “major issues” to be resolved. President Trump then followed that China has been “very responsible and very reasonable” and he predicted that a deal could occur within 3 or 4 weeks. Given these timelines, the summit between President Trump and Chinese President Xi Jinping at Trump’s Mar-a-Lago resort is now likely to be pushed out to mid- or even late-April. Chinese officials have said that President Xi is worried that the meeting could end without a deal; not unlike the meeting between Trump and North Korean President Un in late February. As President Trump often says, “we’ll see what happens.”
Option News: As expiration approaches, March aggregate option industry volume is averaging just 20.0M 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.
Friday (3/15) is quarter-end “quadruple witching” options expiration. Many years ago this often caused unusual market volatility, but now that options expire on multiple days each month, the remaining residual effect is usually just higher volume throughout the week.
How the market finished last week, the S&P 500 up 2.9%, the Nasdaq up 3.8%, and the Dow up 1.6%.
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This Week: For the 6th time in the last 5 months, the SPX has struggled to get past technical resistance at 2816. While there are upside catalysts out there, most seem unlikely to arrive next week. The outlook for next week looks iffy. The VIX is at a 5-month low, expect some volatility.
The stock market move higher on Monday (3/11) was anticipated, though it was sharper than expected, and the pullback that many traders seemed to be preparing for, never came. With the VIX at YTD lows, the market seems to be pricing in the best possible outcome on both the trade war with China and the Brexit, so the downside risks are growing.
It is a bit puzzling about what exactly is driving the market higher at this point, because there seems to be a real lack of upside catalysts; one possibility is corporate share repurchase programs. With 215 companies and more than $225B already authorized for buybacks, 2019 is on track to be the highest year ever. I could be wrong, but for this bull market to continue, it probably needs actual investors too.
For the markets abroad, UK data and a possible EU agreement to extend Brexit dominate the week, along with a Federal Reserve (Fed) meeting and a rate decision from the Bank of England (BoE).
Friday sees the release of flash purchasing managers index (PMI) data from around the globe. In corporate news, Next releases full-year results, as does Antofagasta and Kingfisher.
Economic Calendar: FOMC Rate Decision (3/16), Leading Economic Indicator (3/21), Treasury Budget (3/22)
Some of the major earnings announcements on deck: HDS, FDX, MU, DRI, NKE.
$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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